Amazon took its first scalp this week after Wesfarmers Ltd (ASX: WES) decided to shelve its plans to publicly list its stationery and offices supplies business Officeworks. The Perth-based retail conglomerate, which also owns Woolworths Limited (ASX: WOW) competitor Coles, said that soft retail conditions meant it wasn't the right time to sell out of its outperforming Officeworks business.
If management rhetoric is to be believed, Officeworks was never actively up for sale. Instead, the strategic review of the business was brought about by investment banks indicating Wesfarmers could get a good price if it sold out now.
However, with the recent profit downgrades of RCG Corporation Ltd (ASX: RCG), OrotonGroup Ltd (ASX: ORL) and slowing sales at MYER Holdings Ltd (ASX: MYR), it appears the market is fearing the worst for the retail sector in anticipation of Amazon's imminent arrival to Australia.
Accordingly, most retail stocks have plummeted as investors grow cautious of retailers' prospects.
However, one stock which continues to buck the trend is Australia's mini-rival to Amazon, Kogan.com Ltd (ASX: KGN).
About Kogan
I'm sure most readers have heard of Kogan at some point in their lives. Whether they've purchased a generic kettle from the manufacture of household appliances, or splashed out on a grey import iPhone at discounted prices (compared to Apple), most readers are likely to have visited Kogan.com at some point in their lives.
As the brainchild of former accountant and current CEO and founder – Ruslan Kogan – Kogan.com started in 2006 as a direct-to-market website where Kogan-branded goods were sourced from overseas OEM suppliers and shipped directly to customers.
Whilst purchasing from Kogan meant customers were expected to wait many weeks before their goods arrived, the direct from factory supply chain meant Kogan could substantially undercut competitors.
This business model has proven to be a resounding success – though its share price tells a different story.
Financial performance
Kogan listed on the ASX in July 2016 for $1.80 per share and has never breached that mark since. The company floated at a forward price-earnings of 20x, almost two times as expensive as bricks-and-mortar competitors JB Hi Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN).
The key drawcard for investors was Kogan's exciting growth prospects as a listed company.
For the half-year ended 31 December 2016, Kogan exceeded 2017 full-year forecasts within its first half, as sales revenue swelled 37.3% on the prior corresponding period.
Pro-forma trading earnings (EBITDA) for the first half hit $7.3 million allowing the company to post margin expansion and generate a first-half net profit after tax of $3.7 million – almost 48% higher than full-year pro-forma forecasts,
Foolish takeaway
Indeed Kogan's first half was an exceptional result in the backdrop of a struggling retail environment.
However, unlike Amazon, Kogan specialises in selling generic white-label products which have been rebranded under its own name. Whilst this hasn't been a detractor to the company's success (yet), I'd imagine the introduction of Amazon's world-leading supply chain could mean branded products become cheaper, placing pressure on Kogan's margins and spelling trouble for shareholders.
Accordingly, I would stay away from Kogan shares for the time being.
