ii view: Boohoo shares recover from early crash

This AIM 100 retailer is down by close to three-quarter during 2022, but operations are being automated. We assess prospects. 

First-half results to 31 August

• Revenue down 10% to £882 million
• Adjusted profit (EBITDA) down 58% to £35.5 million
• EBITDA margin of 4%, down from 8.7%
• Adjusted pre-tax profit down 90% to £6.2 million
• Net debt of £10.4 million, down from net cash of £98 million

Guidance:

• Expects adjusted EBITDA margins of between 3% and 5%, down from 4-7% previously

Chief executive John Lyttle said:

"Performance in the first half was impacted by a more challenging economic backdrop weighing on consumer demand. Over the last three years the Group has seen significant gains in market share achieved across our brand portfolio, particularly in the UK where our price, product and proposition resonate strongly with customers. 

“We have a clear plan in place to improve future profitability and financial performance through self-help via the delivery of key projects, which will stand us in good stead as macro-economic headwinds ease. We remain confident in the long-term outlook, as we continue to offer customers unrivalled choice, inclusive ranges and great value pricing, giving them even more reasons to shop with us."

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ii round-up

Online fashion retailer Boohoo Group (LSE:BOO) today reported a fall in first half profit as it reduced expectations for the full year given an increasingly challenging backdrop for its customers.

Adjusted pre-tax profit for the first half to the end of August slumped 90% to £6.2 million, hit by a 10% fall in sales to £882 million and higher costs such as freight and logistics. 

Full-year sales are now expected to decline by a similar amount, with the adjusted profit margin (EBITDA) forecast to come in at between 3% and 5%, down from 4% to 7%. 

Shares for AIM-listed Boohoo fell by more than 10% in UK trading, leaving them down around 70% year-to-date, although they had recovered by lunchtime. Shares for rival ASOS (LSE:ASC) are down by a similar amount during 2022, while the FTSE AIM 100 index has fallen by a third.

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Boohoo UK sales retreated 4%, slowing through the second quarter as inflationary pressures increased and consumer demand was hit by the cost-of-living crisis. Product returns rose significantly year-over-year, and overseas sales declined 17%, hindered by extended delivery times. 

A US distribution centre is on track to open in the first half of the 2023/24 financial year, reducing customer delivery times. Automation at its Sheffield distribution centre began in late September and is expected to drive material cost savings and efficiencies. 

A third quarter trading update is likely in mid-December. 

ii view:

Coming to the stock market in 2014, Boohoo is today an online clothing and fashion accessory retailer. Along with Boohoo itself, its other brands include PrettyLittleThing, Nasty Gal, MissPap, Karen Millen, Coast, Debenhams, Dorothy Perkins, Wallis and Burton.

It has around 19 million active customers, with the UK generating its biggest slug of sales at around three-fifths. That’s followed by the US at around a fifth, Europe at around a tenth and the Rest of the World the balance. 

For investors, a highly uncertain economic outlook, including rising interest rates and a cost-of-living crisis, cannot be overlooked. Despite a lack of store costs, other expenses such as clothing returns may be higher than the likes of Next (LSE:NXT) where items can be taken back to a shop. The pandemic and selling overseas from a UK distribution network have highlighted the need for more localised distribution hubs, while intense competition online is unlikely to ease.

On the upside, sales are 56% higher than the pre-pandemic 2019 year. Investment in automation and its overseas distribution ability is also being made, its portfolio of different brands is extensive, while group net debt is relatively small.  

In all, and while longer-term potential to grow persists, a more cautious consumer now prevails, with investors likely to wait for evidence of recovery before adding to holdings. 

Positives: 

• Geographical diversity
• Wide portfolio of brands

Negatives:

• Elevated costs
• Highly uncertain consumer outlook

The average rating of stock market analysts:

Hold