After soaring to a 52-week high of $8.08 in mid-January, shares in ASX digital retail company Kogan.com Ltd (ASX: KGN) came crashing back to earth during the height of the coronavirus panic selling. In all, Kogan shares shed a whopping 57% of their value, bottoming out at just $3.45 on 13 March. However, since then Kogan shares have clawed back most of those losses, edging all the way back up to $7.111 as at the time of writing.
Other retail shares like Premier Investments Limited (ASX: PMV) and JB Hi-Fi Limited (ASX: JBH) have followed similar price trajectories, but neither have recovered as strongly as Kogan. Even shares of struggling department store Myer Holdings Limited (ASX: MYR), which have more than doubled in price since sinking to a low of $0.083 on 23 March, are still down 60% so far this year. Kogan shares are only off their 2020 opening price by about 7%.
So why has Kogan fared so well during the coronavirus pandemic?
In a business update released to the market last week, Kogan announced gross sales for the March quarter were up 30% against the prior corresponding period, while gross profit was up 23%. Additionally, active customers to Kogan's online "marketplace" – where independent retailers can sell their products through the Kogan website – grew by record high rates in March.
And this was coming off a first half for FY20 in which Kogan reported its highest ever half year gross profit of just under $50 million, an increase of 10.6% over first half FY19.
Government restrictions aimed at fighting the spread of coronavirus have confined people to their houses, which means more people are doing their shopping online via websites like Kogan's. But unlike JB Hi-Fi or Myer, which do have a significant online presence, Kogan doesn't have the additional burden of a brick-and-mortar retail network to worry about during these uncertain economic times.
The lack of these sorts of overheads, as well as the ability for the company to transition seamlessly to remote working arrangements, have made Kogan surprisingly resilient during these turbulent market conditions. In the business update, Kogan founder and CEO Ruslan Kogan also praised the strength of the company's supply chains, which have remained robust throughout the pandemic.
Can the share price rally continue?
Although Kogan has outperformed most other retailers during this coronavirus pandemic, it's still difficult to feel bullish about the retail sector as a whole. Australia has so far seemed to have navigated the coronavirus healthcare crisis quite well, but the economic impacts have the potential to be long lasting and severe. If unemployment rates explode and the economy contracts, consumer spending may drop sharply.
On the other hand, government stay-at-home orders have provided Kogan with a unique opportunity to expand its market penetration. People who may never have thought to purchase products through Kogan are now beginning to frequent the company's website. If Kogan can turn even a fraction of those people into regular customers it could easily emerge on the other side of the coronavirus crisis a more profitable company than it was before the pandemic started.
Foolish takeaway
None of us possess a crystal ball, and in these uncertain times it's even harder to make predictions than normal. However, Kogan seems uniquely positioned to outperform its peers during these strange conditions. So, if you want some exposure to the retail sector, Kogan might be the most exciting prospect on the ASX right now.
