Online fashion retailer Sosandar (LON:SOS) is a much smaller business than ASOS (LON: ASC) and boohoo.com (LON: BOO) and it has a different niche. However, it is growing rapidly and has raised a further £7m to finance further growth.
Sosandar.com was launched in 2016 by former fashion journalists who had passed the age when they were interested in fast fashion brands and had significant income to spend on fashion. They knew there were plenty of other women like them who could not find the style and quality of clothes they wanted.
The company reversed into AIM cash shell Orogen in November 2017. The reversal price was 15.1p and at one point the share price had trebled. It is currently 17.5p.
The latest £7m was raised at 15p a share, which was a small premium to the market price at the time. There was plenty of demand from shareholders.
Sosandar focuses on women between 35 and 54 years old. A part of the fashion market worth £3.7bn a year in the UK. However, there are plenty of customers outside this age range.
Sosandar designs and sources all its products. The focus has been on the UK, but there is international potential. Warehousing and distribution is outsourced.
Customers are becoming more loyal. Repeat orders increased by 391% in the year to March 2019.
Use of cash
Sosandar has been widening its product range and the additional cash will enable it to be further widened. This will include moving into new niches.
The cash will also mean that the business will not have to rely on supplier credit to help finance expansion.
There are also plans to broaden the customer base by increased marketing investment, plus by selling product on third party websites. The cost of acquiring customers has been declining as management gains more experience of the customer base.
Sosandar is loss-making and it is not expected to be profitable until the year to March 2021. Revenues are expected to more than double this year to £9.5m and then more than double again to £19.9m. That is anticipated to produce a pre-tax profit of £1.5m. That would put the shares on 20 times prospective 2020-21 earnings. That could halve the following year.
These forecasts still mean that there is a comfortable net cash position Sosandar.
Forecasts have been trimmed due to higher spending on attracting new customers and the share placing has heavily diluted the earnings per share figure. Even so, now the froth in the share price has gone the company is looking attractive, particularly given the institutional investor backing.