But from 11.8 million online shoppers in 2020, there are, in 2024, about 17.1 million of us clicking and filling carts; that’s almost 64% of the population, despite ongoing cost-of-living pressures on people’s wallets.
And that number is forecast by the 2024 Global Digital Insights report by Hootsuite and We Are Social to reach about 23.1 million online shoppers by 2029, almost double the 2020 figure.
In the 2023-24 financial year, 52.8% of Australian internet users bought goods or services online, up 0.1%. E-commerce spending hit a record high of $56.1 billion, with fashion products the top seller, at $11.6 billion in sales.
Before COVID, according the AusPost eCommerce Report, online retail accounted for about 10% of total spending; that proportion has risen to 16.8%. Generation Y shoppers (born between 1981 and 1996) are the big spenders, responsible for $22.1 billion of sales.
It has actually been a tough time as an investor in the online retail business, as most of the listed companies traded higher on hype before losing most of the air from their balloons, but let’s look at some of the sharemarket exposures to this growing retail channel.
Of this group, I think Adore Beauty looks a potentially good buying opportunity; with City Chic a more speculative prospect that could reward those buyers who understand the risk of buying a company in turnaround.
Kogan.com (KGN, $5.10)
Market capitalisation: $513 million
12-month total return: 3%
3-year total return: –21% a year
FY25 Estimated Yield: 3.1%, fully franked (grossed-up, 4.4%)
FY25 Estimated P/E ratio: 22.4 times earnings
Analysts’ consensus target price: $5.80 (Stock Doctor/Refinitiv, seven analysts)
Floated in July 2016 at issue price of $1.80, Kogan.com – operator of the largest Australian pure-play online retail website – peaked at $20.80 in August 2020, before its balloon was pricked to the tune of an 87% slide, all the way to $2.72 in July 2022. Since then, KGN has mounted a determined recovery, rising 88%, to $5.10.
Kogan.com is a portfolio of retail and service businesses that includes Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Internet, Kogan Insurance, Kogan Money, Kogan Energy, Dick Smith, Matt Blatt, Mighty Ape and Brosa. Kogan.com earns most of its revenue and profit through selling goods and services to Australian and New Zealand consumers. Its offering comprises products released under Kogan.com’s Exclusive Brands, such as Kogan, Ovela, Fortis, Certa and Komodo (Exclusive Brands Products), and products sourced from imported and domestic third-party Brands such as Apple, Canon, Swann and Samsung. The company plans to launch Kogan Super in the near future.
Kogan.com is coming off a good FY24, rebounding from an underlying loss of $4.3 million in FY23 to an underlying net profit of $21 million, despite a 4.8% slide in gross sales, to $809 million. The company paid a full-year dividend of 15 cents a share, fully franked, cementing its return to profitability.
The Kogan FIRST loyalty program added 101,000 subscribers to 502,000, a rise of 25.2%. While Kogan FIRST subscribers represented just 26% of active customers in FY24, the program generated more than 61% of gross sales.
On consensus target price, analysts are generally positive on KGN, but there is an outlier to the downside, Citi, which rates the stock a ‘sell,’ and has a different view of a target price to the consensus, at $4.20.
Temple & Webster Group (TPW, $12.59)
Market capitalisation: $1.5 billion
12-month total return: 105.7%
3-year total return: –1.5% a year
FY25 Estimated Yield: no dividend expected
FY25 Estimated P/E ratio: 177.3 times earnings
Analysts’ consensus target price: $13.00 (Stock Doctor/Refinitiv, 11 analysts)
Temple & Webster operates on a ‘drop-shipping’ model, in which the company dispatches products directly from suppliers to customers. In addition to the drop ship range, Temple & Webster offers a private-label range sourced directly from overseas suppliers. The e-commerce business sells a wide variety of furniture, homewares and home improvement products.
Like Kogan.com, online furniture and homewares retailer Temple & Webster enjoyed its time in the sun as a market darling. Floated on the Australian Securities Exchange (ASX) in December 2015 at $1.10 a share, the stock peaked at $14.71 in August 2021, and it seemed it could do no wrong. But as the country re-opened in 2022, rising interest rates caused high-growth companies to be shunned by investors, and TPW hit the skids. Big-time.
But since bottoming at $3.32 in June 2022, TPW has been reinstated to a star stock, rising almost 3.8 times.
In August, TPW bucked the trend of a subdued retail sector, delivering record annual sales and sending its share price surging almost 24%. Despite the challenging retail environment, Temple & Webster’s sales jumped nearly 26% to $498 million in FY24 – in a broader market that contracted by 4% – and EBITDA exceeded expectations, coming in at $13.1 million. However, net profit slumped to $1.8 million from $8.3 million in FY23, due to one-off costs.
Revenue growth for the year was driven by a 31% jump in active customers, to a record high of 1.1 million – almost three times the pre-pandemic number. Repeat customers now make up 57% of all purchases, and 850 new private label products were added in the 2024 financial year, with new ranges across key categories including home improvement.
Temple & Webster told the market the shakeout in the furniture and homewares retail sector was over. TPW said it aims to increase its market share in the $19 billion furniture and homewares market and achieve $1 billion in sales within the next three to five years. The company is also focused on expanding its private-label product range and leveraging technology to improve customer experience. The company said at the time of its result announcement that FY25 had started strongly, with revenue to 11 August 2024 up 26% year on year.
While TPW faces challenges in achieving its long-term EBITDA margin target of 15 per cent – the figure is currently less than 3% – its strong performance and growth prospects mark it as a high-calibre stock. With no debt and more than $100 million in cash, the company can fund all of its growth plans. The only problem is that the share price surge that greeted the FY24 result has taken most of the near-term upside away.
Adore Beauty (ABY, $1.015)
Market capitalisation: $95 million
12-month total return: 24.5%
3-year total return: –40.8% a year
FY25 Estimated Yield: no dividend expected
FY25 Estimated P/E ratio: 20.3 times earnings
Analysts’ consensus target price: $1.32 (Stock Doctor/Refinitiv, four analysts)
Online beauty and health products retailer Adore Beauty floated in October 2020 at $6.75, but was soon heading south, as it became obvious that investor expectations made during the lockdown boom were going to prove difficult to meet. ABY bottomed at 70.5 cents in October 2023, but since then, the stock has gained 44%.
The company is coming off a good FY24, in which revenue rose 7%, to $195.7 million, while the bottom line surged from an FY23 loss of $559,000 to a net profit of $2.2 million. Adore Beauty increased its returning customers by 5.8%, to 519,000 customers, while active customers increased by 1.6%, to 814,000.
Making its profit announcement in August, the company reported that sales for the first seven weeks of FY25 were up 7%.
Previously online-only, Adore Beauty plans to open two retail concept stores in its home state of Victoria this financial year, in a move it says will bolster brand awareness and new customer acquisition. The stores will be located at the Southland and Watergardens shopping centres and are expected to open in early 2025. Further complementing the move into physical retailing is the purchase, in June, of Australian beauty and wellness brand, iKOU, which brings with it three retail boutiques in the Blue Mountains, Sydney, and Byron Bay, a direct-to-consumer website, and wholesale distribution agreements with retail stockists and luxury spas to sell its range of organic skincare, bath and body, home fragrance, herbal tea and spa lifestyle accessories.
iKOU is also expected to help Adore achieve its EBITDA margin guidance, which posits a lift from 1%–3% to 4%–5% in FY25. Analysts see building another channel to generate sales as the next leg of growth for the company, and they see healthy capital growth prospects in ABY.
City Chic Collective (CCX, 11.5 cents)
Market capitalisation: $52 million
12-month total return: –59.5%
3-year total return: –72.5% a year
FY25 Estimated Yield: no dividend expected
FY25 Estimated P/E ratio: n/a (loss-maker FY24)
Analysts’ consensus target price: 27.5 cents (Stock Doctor/Refinitiv, four analysts)
Women’s specialty “plus-sized” clothing retailer City Chic (CCX) had a poor FY24, featuring a sale of one of its US-based businesses, a restructure and a capital call; and the final result was a bit of a shocker. Sales fell 24%, to $131.6 million; active customers dropped 22.5%, to 481,000; and the company reported a loss from continuing operations, of $38.4 million, following a loss in FY23.
But analysts seem prepared to back the company’s turnaround plan, and a rapidly recovering gross profit margin, and with CCX’s FY25 EBITDA (earnings before interest, tax, depreciation and amortisation) guidance coming out significantly ahead of expectations at $11 million–$18 million, analysts appear to be expecting a result close to breakeven in the current financial year, and a reasonable profit – although well short of FY22 levels – in FY26.
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