Investors seem to have forgiven (for the time being) e-tailer Kogan and sent the shares up by more than 16% at one stage yesterday.
Kogan shares finally ended the day’s ASX session with a 14.7% gain to $9.78 – a very different experience from Friday’s sell-off that saw them plunge after a profit downgrade.
The shares ended that day down 14.3% and 14% for the week.
But three days after the Friday confession, everything seems OK again – the shares are now back to the level they were on Thursday, a few hours before Friday’s shock downgrade.
Kogan told its shareholders on Friday it had encountered a number of issues, or “operational challenges”, over the past month that had put significant strain on the business.
A long list of supply chain problems and piles of excess stock saw Kogan cut its earnings predictions for the current financial year.
These include problems with the company’s supply chains and logistics systems, higher-than-expected shipping costs, a glut of unneeded inventory and price inflation on a number of key products.
Investors should realise that companies in the position Kogan now find itself in is that the first downgrade of the type we saw on Friday involving overvalued and unsold inventory, almost always see bigger problems (and possible losses) down the track.
The first downgrade is always followed by others and lower profits or losses eventuate.
Investors only have to look at the recent history of Freedom Foods which has just managed to recapitalise after a $600 million write down of unsold, out of date and unwanted stock, plus other accounting issues that came to light as its accounts were investigated.
The original estimates of stock problems were much smaller and the company almost collapses when it was confirmed the problems were much worse and previous earnings reports had to be restated. But the company was eventually rescued by its major family shareholder standing behind it and offering to fund the entire $260 million plus recap if need be (See separate story on Freedom).
And then there’s the example of Synlait, the NZ dairy products group. In March it downgraded its earnings outlook from a profit to a “break-even” result for the year to June 30.
Yesterday it issued new guidance and the company is now forecasting a loss of at least $20 to $30 million (See separate story on Synlait).
The message for Kogan investors is to be prepared for more bad news before things improve. That’s why yesterday’s rebound smacks of desperation.
