ii view: Boohoo shares plummet to six-year low

The pandemic has made for tough comparatives, but management remains optimistic looking forward. We assess prospects. 

First-quarter trading update to 31 May

• Total revenue down 8% to £446 million

Chief executive John Lyttle said:

“I am pleased with the progress we are making towards our strategic priorities, which is already having a meaningful impact operationally within the business. 

“Looking forward, we will continue to focus on optimising both our financial and operational performance to ensure the business is well placed to take advantage of future growth opportunities.”

ii round-up

Online clothing and fashion accessory retailer Boohoo (LSE:BOO) today detailed a fall in quarterly sales but left its previously reduced full-year guidance unchanged. 

Sales fell 8% for the three months to the end of May to £447 million given tough prior year comparatives. Management guidance for the full year remained unchanged, with forecast revenue growth in the low single-digit range and the adjusted profit margin still expected to come in at between 4% and 7%. The news came on the same day as rival ASOS (LSE:ASC) cut its annual revenue and profit guidance. 

UK sales have sequentially improved through the quarter and the key summer season lies ahead. 

Boohoo shares fell by more than 15% in UK trading having come into this latest update down by over 40% year-to-date. Shares for ASOS fell by a quarter while shares for Next (LSE:NXT) and Marks & Spencer (LSE:MKS) retreated by around 6% each.  

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Progress for Boohoo’s key strategic priorities such as sourcing products closer to home is being made, while sales for its small rest of the world business grew 15% during the period. 

First-half results are likely to be announced in September. 

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.

For investors, and despite a lack of store costs, other expenses such as clothing returns may be higher than the likes of Next 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. A cost-of-living crisis for consumers also cannot be forgotten. 

More favourably, Boohoo’s products and brands continue to appeal, with sales up 75% over the three-year pre-pandemic period. Investment in its overseas distribution ability is being made and its portfolio of different brands is extensive. On balance, and while longer-term potential to grow persists, elevated near-term costs continue to overhang, with investors now likely to wait for evidence of recovery before adding to any existing holdings. 

Positives: 

• Geographical diversity
• Wide portfolio of brands

Negatives:

• Elevated costs
• Highly uncertain consumer outlook

The average rating of stock market analysts:

Strong hold