The Adore Beauty Group Ltd (ASX: ABY) share price could be a solid long-term ASX share pick in my opinion.
For readers that haven’t heard of Adore Beauty before, it’s a beauty e-commerce business that sells over 12,000 products from more than 270 brands. It also has a growing media presence with podcasts and other owned marketing initiatives.
Let’s first have a look at the FY22 result to see how it performed.
Adore Beauty’s FY22 result
Here are some of the highlights from the report:
- Revenue rose 11% to $199.7 million
- Active customers increased 7% to 872,000
- Returning customers went up 31% to 472,000
- EBITDA (EBITDA explained) of $5.3 million, down 30%
- Statutory net profit after tax (NPAT) surged 181% to $2.4 billion
I think it was impressive that the company managed to grow revenue and active customers again, at a time when many ‘COVID winners’ are finding it difficult to replicate the success seen in FY20 and FY21.
The loyalty program and mobile app are scaling well, contributing 60% and 11% of total revenue respectively. I think this is positive for the long-term because it means Adore Beauty won’t have to work as hard (or pay as much) to win, engage with and retain customers. Returning customers accounted for 70% of sales.
Overall revenue benefited from higher average order values and multiple record trading days.
Another highlight for me was that its “first” owned brand called Viviology was launched. An Adore Beauty-owned brand can come with better margins. The fact it was described as the ‘first’ is also interesting and suggests more could be on the way for different customer groups. Skincare brand Viviology experienced sales in the first month that were better than internal expectations.
Trading update
Adore Beauty’s sales in the first seven weeks of FY23 were down 28%, comparing against a period of significant growth when a lot of Australia was in lockdown.
But, it’s expecting a return to double-digit revenue growth in the second half of FY23.
The economic climate is tricky, so the company is implementing cost control measures to actively manage inflation pressures. It’s also focused on improving profit margins. It will double its investment in ‘owned brands’ to support scaling of future revenue and margin expansion.
Despite the difficulties, and investing for growth, it still expects to be profitable in FY23.
Comments on the longer-term and my thought on the Adore Beauty share price
In the longer-term, the company said it “expects to continue to benefit from the structural shift to e-commerce, which combined with high levels of customer retention and growing brand awareness, positions the company for strong future growth.
But FY27, it’s targeting an EBITDA margin of between 8% to 10%, with the mobile app and owned brands targeting contributions of 30% and 10% of revenue respectively. Beyond FY27, it’s aiming for an EBITDA margin of more than 10%, as owned brands account for more than 15% and “new geographies unlock additional revenue opportunities.”
That all sounds positive to me, and the 60% drop in the Adore Beauty share price in 2022 makes it seem like a much cheaper opportunity in my opinion. Growing revenue and improving profit margins will be an attractive combination, if it can keep growing this decade.
