The Kogan.com Ltd (ASX: KGN) share price continued its disappointing decline in May.
The ecommerce company's shares lost 8% of their value during the month. This meant the Kogan share price was down 60% from its 52-week high.
And that's despite the company's shares rebounding 17% after hitting a 52-week low during the month.
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Why did the Kogan share price tumble in May?
The Kogan share price was sold off last month following the release of a disappointing trading update.
According to the update, Kogan is expecting to report adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of $58 million to $63 million in FY 2021. This represents growth of just 16.7% to 27% on FY 2020's adjusted EBITDA of $49.7 million.
This is a significant slowdown on what it was reporting early on in the financial years. For example, during the first half, Kogan reported adjusted EBITDA of $51.7 million. This was up a massive 184.4% on the prior corresponding period.
In addition to this, the company's FY 2021's result also includes the Mighty Ape business, which was acquired for $122.4 million last year. When announcing the acquisition, management was expecting the business to contribute EBITDA of A$14.3 million in FY 2021.
If Mighty Ape has contributed this, then it would mean the core Kogan business has actually posted a decline in EBITDA in FY 2021.
Why is Kogan underperforming?
Management revealed that it has struggled with its inventory management in FY 2021. It appears to have been anticipating that the heightened sales activity would last longer and therefore loaded up on inventory.
Unfortunately, sales slowed and Kogan was left with a significant excess of inventory across its warehouses. Things were so bad that the company incurred millions of dollars in demurrage costs at ports for inventory it didn't have room for.
This had a threefold impact on the company's operations. As well as the extra storage costs, the company is discounting product to shift it and increasing its marketing spend to boost sales.
Shareholders will no doubt be hoping that June is kinder to the Kogan share price.
