Why did investors go dark on the Dusk share price in FY22?

The Dusk Group Ltd (ASX: DSK) share price has been very volatile in recent months. As an ASX retail share, it is exposed to the Aussie consumer.

The business has seen its share price drop by around 50% over FY22, marking one of the more painful drops on the ASX in the 2022 financial year.

Dusk describes itself as an Australian specialty retailer of home fragrance products. It aims to provide a range of “branded premium quality products at competitive prices from its physical stores and online store.”

Some of the products that it sells include candles, ultrasonic diffusers, reed diffusers and essential oils. It also sells fragrance-related homewares.

Lockdown start to FY22

Near the beginning of the 2022 financial year, Dusk reported a strong year of growth compared to FY20. It showed total sales growth of 47.4% to $148.6 million and net profit after tax (NPAT) growth of 225.5% to $26.8 million.

When it released its trading update for the first seven weeks of FY22, it said that it had been disrupted with around 35% of potential trading days because of COVID-19 related restrictions and store closures. As a result of that, top line sales went down 28%, or $4.4 million in dollar terms.

However, Dusk said that in the stores that were open or had reopened, it was seeing “strong customer conversion rates and elevated average transaction value.”

It noted that November and December trading were key because of the seasonality of its sales. In other words, Christmas trading could be an important factor for the Dusk share price.

Potential acquisition subsequently terminated

In mid-December 2021, Dusk announced that it was planning to buy Eroma Group – Australia’s leading supplier of candle making inputs, including fragrance oils, waxes, packaging, containers and candle making kits, according to Dusk.

The deal was priced at an enterprise value of $28 million, which was around five times the FY21 earnings before interest and tax (EBIT) and a lower multiple than the FY22 forecast of EBIT. The acquisition was expected to add over 20% to earnings per share (EPS) before synergies.

However, that deal was only a conditional agreement. Dusk said not all of those conditions had been achieved, so the transaction wouldn’t be proceeding.

FY22 first result and trading update

The latest that investors have heard from the business was in late February 2022 during reporting season.

It said that in the FY22 first half result, total sales were down 12% year on year, but up 36.5% over a two-year period. The ‘pro forma’ gross profit margin was 68%, up from 67.7% in the prior corresponding period.

Dusk said that it generated pro forma EBIT of $21.3 million, compared to $28 million in the first half of FY21 and $9.6 million in the first half of FY20. Profitability can have a key influence on the Dusk share price.

The ASX retail share also gave a trading update for the first eight weeks of the second half of FY22. It said that total sales were down 11.8% year on year, though up 28.4% over two years. Online sales were up 19.4% year on year.

Dusk noted that consumer sentiment “continued to be soft and shopping entre foot traffic was sharply down.” However, in what may be a positive signal, Dusk said that its sales conversion rates and average transaction value remained up against the prior corresponding period.

The company wants to keep growing its store network. It noted it was going to open four new stores in time for Mother’s Day.

The post Why did investors go dark on the Dusk share price in FY22? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dusk Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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