Disappointed with strategy

The moment I read the presentation and investor letter I knew the reaction wouldn't be good. I love this company and individually I am a very large shareholder.

The market had already become spoked at the last investor conference call - particularly Goldman Sachs - around the commentary of increasing overheads.

But to see this update - where consensus forecasts estimated 10% EBITDA margins - to be halved over the next several years to 5% - soley due to rising overheads is ludicrous. We have a CEO who in a miniscule amount of time has decided with the Boards blessing to start doubling overhead spending on the premise that it will drive sales growth. Over my professional career in alternative funds management I have I have run various private funds and I get the shudders everytime I see a management team decide off the bat that spending huge sums will bring growth. What ultimately transpires is a huge increase in overheads but revenue growth disappointing. Or offsetting revenue growth that would have naturally occurred as online sales increase. Keeping constant margins and constant opex/capex as a % of sales is often more than enough to drive increased capabilities, brand investment and customer experience outcomes.

I would have preferred the CEO to get his feet under the table longer and done more stakeholder consultation before doing something like this. This move will have shaken institutional support, analyst faith, and its own credibility.

I was highly attracted to this company as it had fantastic cashflows and was one of the most cashflow generative ecommerce companies on the ASX. But this has shaken my faith in the CEO and has me wondering if he is naïve, and the Board for allowing this direction. I hope I am wrong but will be voting harshly against the Board reappointments at the next AGM.

The days of saying margins and earnings don't matter is over. With rising bond yields earnings need to be brought forward not pushed back. Clearly the market cares - the stock is down 20% over an announcement and "strategy" that appears childish.