Cettire shares are down over 90% from their all time high as investors follow the leader in selling shares

It hasn’t been a good 14 months for Cettire shares. For a long time after the pandemic, eCommerce was one of the few sectors that were better off than before the pandemic from a share price perspective. This was for several reasons, including advantages to its business model and a solid financial performance. Shares peaked at nearly $5 at the start of March 2024, but are now just 45c. Events in that time have done it no favours – not all of which have had to do with the company’s financial performance.

 

Recap of Cettire

Cettire listed on the ASX in 2019 at 50c per share and didn’t look back for so long – going over $6 per share at its all time peak.

Unlike other ecommerce outlets it has a focus on high-end fashion which is less likely to be impacted by an economic downturn. Although middle-class consumers are doing it tough, the wealthiest are continuing to spend and this has been seen in its results. In FY23, it nearly doubled its sales revenue, grew its active customers by 63% and delivered a margin of 23% – impressive in what is typically a low-margin industry. Another positive trait is that unlike a conventional fashion retailer, Cettire does not bear manufacturing costs.

Disadvantages that Cettire faces are that it relies heavily on marketing, bears delivery costs to the end customer, as well as intensive industry competition.

 

Cettire shares – beware the ides of March

Cettire had a decent start to the year, capped off in February after the company released its 1HY24 results. It grew revenues by 89%, EBITDA by 56% and it made a profit of $16.4m. But March was when the rot started.

On Monday March 4, Cettire told investors CEO Dean Mintz was selling shares yet again. This time he was selling 27.5m shares at an average price of $4.63 per share. He still holds a 30% stake in the company and agreed to escrow his remaining holding for 6 months. But…he once held a majority of stake, and keep in mind that it has only been 6 months since his last sale.

What’s the big deal you might ask? We’ll answer that question with a question of our own: Why would he be selling his shares in Cettire if he sees further upside? There’d be no one better to answer that question than Mr Mintz himself, although he has shied away from the media spotlight ever since the company listed. Yes, the company said there was investor demand and strong liquidity, although it remains to be seen what this sale will achieve that the others evidently didn’t (or at least not enough to prevent the need for another sale).

 

Tax issues too?

Two days later, the AFR published an investigation that revealed duties charged by Cettire on goods may not have been paid to the federal government. Investors sold off the stock, unsure whether this was a legal part of the business model, or something that could get it into trouble.

The company responded within a couple of hours of the market opening. It told investors its business model was to ship it DDP (Delivered Duty Paid). Consumers are the ones who ultimately pay duties although the business must charge it. Responding to the article, in which the authors noticed a shipment came ‘Duties & Taxes Unpaid’, it told investors DHL would pay in this case, whether before or after the shipment – Cettire would not be on the hook. It also said it had a direct debit arrangement in place within the Australian Department of Home Affairs to facilitate direct payment of duties prior to customs clearance.

 

The ides of June proved even worse

On June 24, shares nearly halved in a day after a company update. There was some good news, including the launch of its platform in China, and strong active customer, sales revenue and EBITDA growth in FY24. Revenue is FY24 was expected to be 77-79% ahead of FY23, and EBITDA 24-36%.

But…revenue and EBITDA were both behind consensus of $750m and $44.1m respectively. And go to the second page of the announcement, and there was some bad news. ‘Since our market update in mid-April, however, we have observed more challenging market conditions,’ the company said.

‘A softening demand environment, and an increase in promotional activity has been visible across our footprint, particularly in the last several weeks as the market has entered the [Northern Hemisphere] Spring Summer [20]24 sale period. Additionally, we believe the market is currently being impacted by clearance activity as certain players exit parts of the market’.

‘To continue to expand our market share, Cettire has selectively participated in the promotional activity, leading to an increase in marketing costs relative to sales and a decline in delivered margin percentage’.

‘So what if a company has a bad couple of months’, you might say. ‘All companies have them’. True, but the reality is that this stock succeeded by undercutting its larger rivals, charging cheaper prices. And now, it seems the bubble is bursting.

To top it all off, the news came in last week of FY24, meaning time is running out for investors to claim tax losses. For investor already sitting on losses, to sell Cettire would be a no-brainer, especially those who wanted to offset gains elsewhere.

 

Judging by the absolute stonking dg over at $CTT – this is how I imagine @taxlosstrades getting dressed this morning… pic.twitter.com/RUnp9U1YJs

— Nick Fabrio (@longhorncapital) June 23, 2024

 

FY25 has proven not much better

The company released its FY24 results in August 2024. The company boasted ‘Adjusted EBITDA of $32.5m’, but its profit was just $10.5m.

 

Adjusted EBITDA vs. Net Profit
byu/TonyLiberty inFluentInFinance

 

Investors did take these results positively for a couple of months. Also helping was Dean Mintz deciding to buy shares for a change, upping his stake from 30% to 33%, spending ~$16m to do so.

But investors became bearish once more when it released its first FY25 trading update with sales in Q1 only growing 22%, well below consensus estimates. In fairness, other companies in the luxury fashion business reported a difficult market. Companies like MatchesFashion fell over, some like Farfetch barely survived, and even LVMH reported weak sales.

In the first half of the year, it only increased revenues by 11% and made a profit of $4.7m. But plaguing the company has been Trump’s tariffs regime. Even though its total sales to the US are less than 4% of total sales, there will be (and there is emerging) a significant impact on consumer confidence in the US. Its most recent update came on April 23, and sales revenue for the quarter was only up by 1% compared to the prior corresponding period, and it couldn’t even record positive ‘Adjusted EBITDA’, with that figure being $4.7m in the red (albeit inclusive of a $2.1m forex loss). Cettire said it was focused on delivering profitability in Q4 and that it had delivered $5m in annual run-rate cost initiatives.

 

Conclusion

The reality is that eCommerce tends to be a bad business to be in, with low margins. As Amazon has shown, the best way to succeed is to be a monopolist by outperforming all your competitors in service and price. But the fact that even Amazon is no longer a pureplay eCommerce company, relying on AWS and services offered with its Prime membership, illustrates the reality of eCommerce even further.

While being luxury-focused does put you in a better position, you are still subject to intense competition and potential disruptions in demand triggered by things as simple as outbursts by the President of the USA.

We think investors who haven’t taken a tax loss on Cettire should seriously consider doing so while they have a chance to do so before the close of FY25. But beware, this is not financial advice!

 

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