Kogan Crashes, AS Ruslan Ducks For Cover Behind A Mountain Of Problems
His TV appearances are less, and a lot of the swagger that Ruslan Kogan the CEO of Kogan.com engaged in when he was trying to flog Kogan to the market, has also gone, because he now has the multi million dollars house, the fast cars, and tens of millions of dollars in the bank, so why should he care as to the future of kogan.com whose shares crashed 14% on Friday in late trading.
Ironically, it’s Kogan archrival Terry Smart and JB Hi Fi that is in a strong position to grow as Kogan struggle and Ruslan Kogan fails to surface for a media interview to explain his woes.
Smart and Kogan have history, during his bragging days when the media fell in love with the gospel according to Kogan he claimed in 2011, that Apple would pull out of JB Hi Fi stores and that the retail would struggle.
In March 2011 he told ChannelNews “I challenge the current CEO of JB Hi-Fi, Terry Smart, to a $1,000,000 bet that on March 14th, 2014 there will not be any Apple hardware products for sale at JB Hi-Fi stores. The Australian public deserves to know the truth right now. The contract for the bet has already been drawn up by my lawyers and can be found here.” http://cdn.kogan.com.au/uploads/wager_deed_.
Smart won, Kogan failed to pay up and the contract has mysteriously disappeared.
Two weeks later JB Hi-Fi Limited announced its intention to buy-back up to 10% of its shares on issue, representing approximately $170 million worth of its shares, through an off-market share buy-back.
CEO Terry Smart said at the time “Our continued strong cash flow generation has enabled the return of surplus capital to shareholders. When combined with $88.4 million of ordinary dividends in the last 12 months, JB Hi-Fi will have returned over $258 million to shareholders in the last 12 months. We continue to take a prudent approach to the management of our balance sheet, and we are now in a position to return capital whilst still maintaining financial flexibility to invest in growth opportunities.”
The deemed market value of the JB Hi Fi shares at the time was $18.31, today JB Hi Fi shares are trading at $47.45.
Meanwhile Kogan.com shares are wallowing in a sea of poor retailing, stock problems and a shocker supply chain and as for COVID-19, his price gouging of consumers during the peak of the pandemic also appears to have failed to bring in the revenue.
Friday’s fall means the stock is now down 64 per cent since its all-time high in October. But it also took Kogan.com shares below their level of a year ago, to be down 7 per cent over the past 12 months.
The business has warned that adjusted earnings before interest, tax, depreciation, and amortisation would come in at between $58 million and $63 million, well below market expectations of about $70 million.
The shock warning from the group has exposed Ruslan Kogan as CEO Ruslan Kogan and fellow director David Shafer CFO now struggle to untangle the mess that the Company is in.
The business is being squeezed in several ways and the question now is whether Ruslan Kogan is more bullshit artist, than retailer and whether he has the skill set, to rescue the business which according to insiders JB Hi Fi and Terry Smart have the measure of, as they grow the online business of both JB Hi Fi and The Good Guys up against a struggling Kogan.
The AFR said recently ‘With demand soaring through 2020, supply chains around the world stretched and this supposed “once in a century” opportunity in front of it, Kogan.com bet heavily on sales continuing at their elevated rate and heavily built-up inventory, expanding its warehouse network to 31 facilities, many of which were set up over the past five months. The increased warehouse facilities created what Kogan.com described on Friday as “a number of near-term supply chain inefficiencies”, which is, of course, code for lots of extra costs.
Stock demands, a lack of supply and a heavy investment in warehousing is costing the business which has been hit with a $3.9 million charge for demurrage – fees that shipping lines charge when containers are left in a terminal after a certain deadline.
Sales are also a massive problem as his Chinese suppliers squeeze him, his inventory builds-up and the cost of promoting the excess stock rises as demand for media space rises along with the cost.
Kogan.com says the inventory situation will get under control in the coming months. But as RBC analyst Tim Piper noted on Friday morning, if paying the price for too much inventory wasn’t bad enough, “more concerning to us, the current level of demand being seen has moderated through recent months despite the heavy price discounting, promotional activity and elevated marketing costs”.
This suggests the new customers added in 2020, who Kogan was certain would keep shopping online, haven’t proved nearly as sticky as he expected.
Piper told the AFR that the market will also need to reassess its earnings forecasts for the 2022 financial year – RBC had been at $72 million, but market consensus was sitting at $86 million before Friday.
Not only are sales growth expectations probably too high, but Piper also says the 2020 projections “assume unrealistically high gross margins in Kogan.com’s e-commerce channels”.
Maybe it’s time for Kogan to offload the business because there is the real possibility that the shares are going to fall further and the business struggle as the demand for consumer electronics and appliances slow leaving JB Hi Fi and Harvey Norman to strip sales from Kogan.com.