- Shares have been a disaster since last year’s IPO
- Another profit warning darkens its prospects
- Fears that demand could weaken further
Sofa seller Made.com (MADE) has lost 88% of its market value since joining the stock market just over a year ago.
The company’s shares have sunk once again after downgrading its sales, profit and cash guidance due to a slump in demand, rising costs and having to shift excess stock at lower prices.
Made.com got off to a bad start as a listed business when its share offer was priced at the lower end of its guidance in June 2021 at 200p. The shares subsequently fell by 8% on the first day of trading.
During the second half of 2021, the business encountered large delays with sofa deliveries due to supply chain problems. This year the market has become worried about consumers cutting back on their spending, particularly big-ticket items like sofas.
In May, Made.com warned of a shift in consumer behaviour, with a clear risk to sales growth as the nation worried about recession and coping with the higher cost of living.
At the time it said online furniture and home market sales were down between 30% and 40% year-to-date. While it outperformed this trend by only seeing a 10% decline in gross sales in the first quarter, it wasn’t enough to convince investors that there was no reason to panic.
The share price kept falling and now the stock has seen another big one-day slump, caused by a big downgrade to earnings guidance as the outlook is bleak. Its shares fell nearly 40% to 23.66p.
Additional supply chain costs are hurting the business due to disruptions at ports and extra handling at warehouses.
It is sitting on too much stock and must therefore slash prices to try and shift these units, another factor eating into its profitability.
There has been a 5% decline in active customers during the first half of the year versus the same period in 2021.
Based on the current state of play with costs, volatile trading and a realisation that big-ticket item demand could be weak near-term, Made.com sales the rate of sales and earnings decline in 2022 could be up to twice as bad as previously thought.
Wayne Brown, an analyst at Liberum, says: ‘The strategy as laid out at the time of the IPO was well thought through. At its core, the aim was to drive down lead times, improve customer service, broaden out the offer and range and improve brand awareness.
‘It was well on track to achieve all these and in so doing, should have delivered higher revenues and leverage through the profit and loss account.
‘To affect this, investment was made into inventory levels to shorten lead times. The unfortunate timing was this occurred at the exact moment the consumer backdrop materially changed after a period of supply side shocks.
‘These external shocks have led to profits being impacted yet again, with gross margin erosion and elevated costs.’
