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27 January 2024
By Maynard Paton
Fashion website Sosandar provides a fascinating dilemma for small-cap growth investors.
Bulls will highlight the online retailer’s very rapid expansion and bold ambition to raise profits to £10 million which, if achieved, would make its £37 million market cap extremely attractive. The story is also backed by keen co-founders and net cash.
Bears will note the £10 million profit ambition is based upon creating a chain of shops alongside continuing to sell clothes online. Sosandar’s website currently makes little profit and the fashion industry — whether selling online or through shops — is blighted by poor economics.
Let’s take a closer look.
Read my full SOSANDAR article for SharePad >>Maynard Paton
What I found curious was that losses had been falling consistently and then Sosander’s results for March 2023 showed them make their first profits with forecasts of continuing profits growth. So what happened to make the profits fall back so dramatically causing the change in business strategy? My optimism for the company had been based on reasonably consistent revenue and profits growth. There was no suggestion that the online plus through partners (Sainsbury’s, Next etc.) strategy was not working until the sharp drop in profits and change in strategy
Hi Julian
Many apologies for my spam filter preventing your comment from being published in a timely fashion :-(
I too am not sure what really prompted the strategy change. I can only presume the economics of online selling have deteriorated (greater returns, lower marketing ROI?) and the economics of stores (lower rents?) have improved.
Maynard
Whilst clearly i’m not the target customer it feels inconsistent market positioning to have Sosandar clothing available in their own boutique style high street stores at the same time as selling via Sainsburys supermarkets which I think devalues the offer.
Thanks Patrick. I not convinced about selling in both boutiques and supermarkets as well. I suspect the supermarket arrangement was a low-cost way to test the waters of traditional retail before going for the own-shops plan. A question I overlooked in the article was that if the shops are expected to become profitable in two years, then what does that say about how long the £10m forecast profit will take to arrive? I get the impression something is not adding up here.
Maynard