Koovs gets first-half boost but still makes loss, shares plunge

By

Sandra Halliday

Published
Dec 19, 2017

Koovs turned in an improved set of results for the six months to September 30 as it sold more product at full price and boosted brand awareness. 

But the UK-based company, which targets the Indian young fashion market, is still lossmaking and meaningful sales growth remains hard to come by in a market hit by the ongoing effects of India’s currency revolution. The policy known as demonetisation did not achieve the government’s aims, but it did hit Indian retailers hard. The tough environment meant Koovs warned that the year as a whole will be challenging and its share plunged on Tuesday as a result.

So what exactly happened to Koovs in the first half? Well, the bad news is that gross sales were merely flat at £7.9 million. They were "in line with India's e-commerce market, impacted by demonetisation, the introduction of the Goods and Services Tax, and heavy discounting and marketing expenditure by sector peers.” 

Visits to the firm’s website fell 15%, so it’s no surprise that also in the bad news column, group revenues were down to £3.9 million from £4 million, even if active customer numbers rose 4%. And the company made a pre-tax loss, albeit a 15% lower one of £7.8 million compared to £9.1 million a year ago.

Any good news? Well, the group gross margin improved from a worrying -20% to 0%, and the quality of sales improved with markdown sales cut to 20% of the total from 29% a year earlier. That was achieved despite the market being driven by high discounting and it helped the trading margin increase significantly to 18% from 2%.

The company also said that Average Order Value increased by 21% to £17 from £14.70, and brand awareness rose to 21% from 15% in March. And its operating costs were down by 9% to £7.7m.

Other bright spots included new international distribution agreements with Souq.com in the Middle East and Simply Be in the UK. Meanwhile a recent Forrester survey for customer experience ranked it number one among e-tailers in India. Its social media presence also grew by 29% to 2.2 million followers and funding of £8.9m was received in the period through the issuance of 6% convertible loan notes.

FUNDING

That last point is crucial as it means that, with Koovs still clearly a work-in-progress, it has the capital to invest and continue to expand. It’s still aiming to raise more funds (around £10 million) with a capital-raising programme that was announced in July expected to close shortly.

The importance of those funds are obvious as the performance in the second half so far proves. Koovs said that “with modest additional marketing spend, the important month of November delivered a significant year-on-year improvement across key metrics, with sales up by 17% to £1.7m and website traffic up 43%.”

However, it also said that marketing expenditure is currently significantly down due to its ongoing funding requirements and the company expects this to affect the year’s sales overall. Additional marketing expenditure “is conditional upon the timing of closure of that new funding programme.”

But even without the funding issues, Koovs said it remains “well-placed to maximise the future growth of the Indian e-commerce market and expects the market to return to growth in the next financial year.”

CEO Mary Turner said she was pleased with the progress so far, despite the fact that it “has been a challenging year generally for the market” and is upbeat for the future.

And there’s no denying that the market opportunity is huge. The massive Indian e-tail sector is predicted to grow fivefold to $3.5 billion in the next few years as the effects of demonetisation and the Goods and Services Tax fade.