Boohoo profits defy supply chain furore

Areas of caution are few and far between, though lack of dividend might deter income-seeking investors.

The furore surrounding Boohoo's (LSE:BOO) supply chain in July around pay and working conditions has done little to harm the online clothes retailer’s profits or prospects.

Following the allegations the company instigated an independent review. The results of this were published last week. 

Boohoo has accepted the findings of the review in full, including improvements to its corporate governance, compliance and monitoring processes. It will also employ two non-executive directors, one of whom will have environmental, social and governance (ESG) expertise. 

This will, of course, come at a cost, and the possibility of further questions being asked cannot be ruled out at the moment. However, any reputational damage caused by the allegations has not filtered through to a very strong set of numbers.

Boohoo was one of the retailers for whom the pandemic provided a boost, with active customers growing by 34% over the period and the number of orders ahead by 31%. 

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This led to an overall rise in group revenues of 45%, with particularly notable growth in the US, with a jump of 83% as the group attempts to establish a strong presence. 

International revenues now account for 47% in the group overall, which offers diversification. In addition, the group has upgraded expectations for full-year numbers, with expected revenue growth of 28-32%, as compared to the 25% previously guided.

At the same time, Boohoo’s strong cash generation has enabled further bolt-on acquisitions of companies and brands, and in the period the company has added Oasis, Warehouse and the remainder of PrettyLittleThing to its growing portfolio. 

The £198 million placing which the company undertook increased its firepower, and despite the acquisitions Boohoo retains net cash of £345 million at the end of the period.

With gross margins improving to an extremely healthy level of 55% and strong revenue growth, it is of little surprise that the pre-tax profit number showed an increase of 51%. This was achieved without turning to any of the government’s support schemes.

Areas of caution are few and far between. Apart from the costs of implementing the findings of the independent review, limited capacity on air freight flights has increased supply costs to international destinations, while likely capital expenditure expectations have been hiked again to between £80-£100 million. 

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The ongoing lack of a dividend may deter income-seeking investors, but the company has been one on a steep growth curve, choosing to reinvest in the business wherever possible.

Thus, for the moment the stellar growth continues for Boohoo. So too does a share price which has fully recouped the declines of July to stand up 31% in the year to date and ahead by 48% over the last year, as compared to an increase of 9% for the wider FTSE AIM 100 index. 

At these levels the company would be eligible for inclusion in the FTSE 100 if it so chose, although for the moment Boohoo seems relaxed in being a larger fish in a smaller investment pond. 

Appetite for the stock remains undiminished despite the reputational cloud which had hung over the company and even some concerns around stretched valuations, with the market consensus of the shares as a strong ‘buy’ likely to hold firm for the time being.