Adore Beauty Acquires Ikou for AU$25 Million

Highlights:

• Strategic Acquisition: Adore Beauty Limited acquires Ikou, a wellness and skincare brand, for AU$25 million to boost its private label business.
• Financial Impact: Despite the acquisition, Adore shares dropped by 2.7%; Ikou reported sales of AU$8.1 million and earnings of AU$2 million this year.
• Leadership Changes: Adore Beauty is searching for a new CEO as Tamalin Morton steps down, with company founders retaining board seats and significant ownership stakes.

Strategic Acquisition

Adore Beauty Limited (ASX: ABY) has acquired Ikou, a wellness and skincare brand, for AU$25 million. This move is part of Adore Beauty’s strategy to enhance its private label business. The purchase includes an upfront payment of AU$20 million, with an additional AU$5 million due in 18 months. Ikou, founded 17 years ago by Naomi and Paul Whitfeld in the Blue Mountains, offers organic skincare, bath and body products, home fragrances, and herbal teas.

Complementing Existing Business

Adore Beauty’s outgoing CEO, Tamalin Morton, stated that Ikou will complement and strengthen the company's existing operations. "Ikou complements and strengthens our existing business, delivering revenue growth and margin expansion, as well as supporting private label and physical store initiatives," said Morton. The acquisition is expected to boost Adore’s private label share of revenue, enhance margin profiles, and provide a physical store presence across three premium locations in New South Wales.

Financial Impact

Despite the acquisition, Adore shares fell 2.7% on Friday morning, trading at 92 cents. Ikou, which operates stores in the Blue Mountains, Sydney, and Byron Bay, as well as an online shop, reported sales of AU$8.1 million and earnings of AU$2 million this year.

Leadership Changes

Adore Beauty is currently searching for a new CEO following Morton’s decision to step down for personal reasons later this year. Morton, who joined Adore in November 2022 from Priceline Pharmacy, has been instrumental in stabilizing the business. The company's founders, Kate Morris and James Height, who stepped down from executive roles last year, remain on the board and each control 11.05% of the company. Quadrant Private Equity holds a 32.51% stake, while Woodson Capital Management has a 6.6% share.

Challenges and Future Outlook

Adore Beauty, which floated at AU$6.75 per share three years ago, has seen its market capitalization decline due to increased costs and reduced margins. Last year, the company reported a loss of AU$600,000 on revenues of AU$180.6 million. Despite these challenges, Adore is aiming for earnings margins of 2% to 4% amidst ongoing economic pressures, including higher interest rates affecting household budgets.

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