Key figures: Founder Kate Morris, chief executive Tamalin Morton, chair Marina Go.

How it started: Founded by Melbourne entrepreneur Kate Morris and her partner James Height in a Melbourne garage in 2000, Adore started with a $12,000 business loan from family. Over the next two decades, it grew into a national e-commerce player generating more than $100 million in revenue a year. It was listed on the ASX in a deal which secured a payday of more than $92 million for the founders.

How it’s going: The stock has been sold off heavily since its initial public offer, in which shares were sold at $6.75.

The bull case: Adore told investors this week that despite a 17 per cent drop in revenue for the six months to December, the company is seeing growth of a big cohort of repeat customers that regularly shop on its platform.

Returning customers grew by 10 per cent in the first half of 2023, hitting 481,000. These shoppers drive the group’s success, accounting for 78 per cent of Adore’s revenue.

Newly appointed chief executive Tamalin Morton said the group’s loyal customers and growing brand awareness would set the company up well for growth in coming years. Despite accelerating cost of living pressures, February sales were actually up by 3.7 per cent on last year, she said.

UBS analysts have previously highlighted that Adore has a few key strengths, including a “wide product range, with a focus on the growing skincare category”. The fact that the business is “content rich” also helps the group, with its specialist focus and content channels helping to engage customers.

Adore chair Marino Go echoed this last year when discussing how the retailer positions itself against other online platforms, like Amazon.

“Within the premium beauty category, the competitive battleground is centred around experience and value-added benefits, such as samples and gifts with purchase. Adore Beauty caters to these needs,” she said at the time.

The bear case: Despite these strengths, there is uncertainty about the extent to which the company can keep growing sales and what its costs will be moving forward, UBS analysts said at the end of last year.

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Stock watchers who are cautious about Adore are mainly worried about how fast the business can actually grow in an environment of rising costs and lower discretionary spending, as well as how it can ward off the competition in the busy cosmetics market.

UBS analyst Apoorv Sehgal said on Monday that Adore’s sales in the three months to December were slightly ahead of expectations, but the group’s outlook pointed to softer conditions.

“Second-half sales guidance [is] well below UBS estimates and would likely require fourth quarter sales [to exceed] the third quarter,” Sehgal said.

Taylor Collison analysts said earlier this month that while the medium-term outlook is favourable for the company, there are short-term challenges, including “a challenging online retail environment, stemming from a continued shift back to bricks and mortar”.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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