The retail industry has certainly been a difficult place to invest this year. The imminent arrival of e-commerce behemoth Amazon in Australia has led to the shares of many retailers such as JB Hi-Fi Limited (ASX: JBH) and Myer Holdings Ltd (ASX: MYR) falling sharply.
But one retail share has not let that hold it back. Year-to-date the Kogan.com Ltd (ASX: KGN) share price is up a remarkable 50% and last week hit an all-time high of $2.02.
Why are its shares higher?
Despite competing in the same space as Amazon, investors appear to have looked beyond this due to the company smashing expectations in the first-half of FY 2017.
Thanks to stronger-than-expected top line growth, a 33% year-on-year lift in active customers, and improvements in its gross margin, Kogan impressively beat its full-year pro forma net profit after tax guidance in just the first half of FY 2017.
Another highlight that may have caught the eye of the market was its inventory status. At the end of the first-half Kogan had $42.4 million of inventory on hand, of which 90% was less than 90 days old.
I agree with management's view that this fresh inventory puts the company in a solid position to build on its growth in the second-half.
Should you invest?
As impressive as its performance has been, I am concerned about how the company will fare when Amazon finally launches in Australia. After all, a good portion of its products are also sold by the e-commerce giant.
Few companies have been able to successfully compete with Amazon and at this stage I feel it is impossible to know whether Kogan has a strong enough brand and online presence to succeed.
Whilst its diversification into mobile and broadband could help soften the blow, I think the prudent thing to do is to hold off an investment and wait to see how the company performs in FY 2018.
All being well Kogan's strong performance will continue for the foreseeable future, but I intend to watch on from the safety of the sidelines.
