The retail tech corporation Kurly is seeing improvements in its performance. Kurly recently announced that, following its first transition to profitability in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024, it recorded its first quarterly operating profit in Q1 of this year. As the possibility of going public reignites, Kurly aims to restore market confidence through its performance announcement.
Kurly can now say it has turned a profit for the first time since its establishment, but there is a skeptical view in some sectors of the industry regarding its profitability improvement. There are claims that the adjusted EBITDA Kurly uses is adjusted favorably to make the profitability appear more impressive.
According to relevant industry sources on the 5th, Kurly announced that it recorded 13.7 billion won in adjusted EBITDA on a consolidated basis for 2024, an improvement of more than 120 billion won compared to the previous year. Operating losses were also significantly reduced from about 130 billion won in the same period to 18.3 billion won, and operating cash flow (OCF) turned positive. In Q1 of this year, it emphasized that it is "now a profitable corporation" by recording an operating profit of 1.8 billion won for the first time on a quarterly basis.
However, there are claims that the adjusted EBITDA emphasized by Kurly to justify its profit promotes an "accounting illusion." While it is customary to exclude depreciation and amortization expenses from general EBITDA, Kurly additionally excluded "stock compensation expenses". This is a non-cash expense with no cash outflow, and Kurly explains that it aims to show actual profitability in operating activities more accurately.
However, stock compensation is an actual cost that is directly linked to future liquidity issues. It is essentially classified as labor costs. Therefore, there are criticisms that profitability cannot be assessed solely based on adjusted EBITDA that excludes this item. Emphasizing profits while omitting this could lead to criticism for inducing an "illusion of profitability." If stock compensation costs are reflected, both operating profits and net income for the current period are still in the red.
Additionally, Kurly's operating profit for Q1 2025 is 1.8 billion won, which corresponds to an operating profit margin of 0.3% against total sales of 580.7 billion won. The gross profit margin is 32.3%, an increase of 0.6 percentage points compared to the previous year, but selling and administrative expenses remain high at 186.1 billion won. Some forecasts suggest that under this structure, it would be difficult to maintain a genuine profitable trend with just slight sales increases or margin improvements.
Kurly handled over 2 trillion won in losses as a capital surplus last year to improve its financial structure. As a result, it newly recorded retained earnings of 51 billion won on its books. The industry interprets this as an accounting judgment to keep dividend possibilities open ahead of future initial public offerings (IPOs). Based on this, last March, it bought back 15 billion won worth of its own shares, which amounted to 2.4% of the total shares issued, in the over-the-counter market.
However, capital surplus is originally the capital contributed by external investors and should serve as a financial resource for future growth. Using it for the purpose of covering past losses is permissible in accounting, but there are criticisms that it merely erases past liabilities technically on the books.
As a result, there remains a cold perspective in the market. Even if Kurly has achieved numerical improvements, the fixed cost structure, including selling and administrative expenses, and low operating profit margin remain unresolved. There are comments that without a fundamental overhaul of its revenue structure, it is hard to gain trust as a profitable corporation, rather than just temporary performance improvements.
An industry insider noted, "While Kurly places great significance on its accounting profit transition, negative market perceptions still exist regarding Kurly's sustainability and expansion. Although it is possible to create book profits through accounting, it is still difficult to create trust."
In response, Kurly explained, "As of the end of June 2024, Kurly recorded a positive adjusted EBITDA excluding stock compensation expenses, signifying an improvement in actual cash generation capability." It added, "Out of the accumulated investment of 23.595 trillion won derived from capital surplus, 2.3532 trillion won, excluding the statutory reserve (6.3 billion won), was transferred to retained earnings to eliminate losses."