Why did the Adore Beauty share price sink over 70% in FY22?

One of the heaviest falls on the ASX in FY22 belonged to the Adore Beauty Group Ltd (ASX: ABY) share price as it dropped by more than 70%.

It’s not the only ASX growth share to see painful declines over that same time period as investors weigh up a number of different factors.

The company hasn’t been listed that long, but it was able to tell investors about booming sales as shoppers turned to e-commerce during lockdowns.

So, let’s start there. The first couple of months of FY22 was reporting season for FY21.

Strong trading

The FY21 result saw record revenue, profit and customer numbers. Revenue rose by 48% to $179.3 million, active customers increased 39% to 818,000 and it generated earnings before interest, tax, depreciation and amortisation (EBITDA) of $7.6 million (up 53% year on year).

In the beginning of FY22, Adore Beauty said that revenue had increased by another 26% year on year.

So far, so good.

Next came a trading update for the first quarter of FY22. It showed revenue growth of 25% to $63.8 million, with active customers rising 24% year on year to 874,000.

Growth slows

Investors often like to look at how fast a company is growing to consider how big it could grow to in the future and what valuation it should be today. If growth slows, then this could impact the Adore Beauty share price.

In the FY22 half-year result, Adore Beauty revealed revenue growth of 18% to $113.1 million and 13% growth of active customers to 876,000. It made $3.8 million of EBITDA.

The final update we’ve heard from the business was the FY22 third quarter update where it made $42.7 million of revenue – that was growth of 9%. Active customers reached 880,000, which was growth of 7% year on year. However, one area of continuing strong growth was the 47% growth of returning customers.

Management noted that the FY22 third quarter was “strong” at a time when there was a ‘reopening environment’ after the COVID-19 lockdowns and it also had to deal with supply chain pressures.

Re-investing for growth

While it’s getting harder to deliver growth, the company is focused on growing its market share in the $11 billion beauty market.

The Adore Beauty CEO Tennealle O’Shannessy said:

We are sustainably reinvesting in the business by scaling initiatives which lay the foundation for long-term growth and further strengthen our point of difference. Our native mobile app, which now accounts for more than 10% of revenue, continues to deliver elevated levels of engagement conversion, and average order values, and we are preparing to launch our first private label products in the FY22 fourth quarter.

What next for the Adore Beauty share price?

Aside from the fact that investors are having to deal with the uncertainty of inflation and rising interest rates, the next thing will be the FY22 result where shareholders will probably also see a trading update for the first few weeks of FY23. Unless the company decides to release a trading update before reporting season in August.

The post Why did the Adore Beauty share price sink over 70% 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 recommended Adore Beauty Group Limited. The Motley Fool Australia has recommended Adore Beauty 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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