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boohoo.com plc

boohoo.com plc – Profitable growth continues, Zeus Capital upgrading FY17 and FY18

boohoo.com plc (LON:BOO) Announced today its interim results for the six months ended 31 August 2016.

Mahmud Kamani and Carol Kane, joint CEOs, commented: “We are pleased to report a strong performance in the first half of the year, with robust growth across all regions and continued momentum in new customer growth.

Our inclusive brand, unbeatable choice, together with our incredible prices and fantastic service, continue to inspire and appeal to young customers around the world. Through our constant focus on what matters to our customers, together with our investment in technology and operational improvements, we will continue to deliver profitable growth.

As a result of our continued momentum in the UK and encouraging growth in selected overseas markets, we now expect revenue growth for the full year of between 30% and 35%, reflecting tougher second half comparatives. Following the success in the first half of the year we will continue to look for opportunities to invest in marketing campaigns and our customer proposition to drive future sales growth and improve customer lifetime value. We will also be making significant investments in our IT systems and Ecommerce platforms. Consequently EBITDA margin for the full year is expected to be around 11%.”

Zeus Capital said: Profitable growth continues, upgrading FY17 and FY18

Trading continues to go from strength to strength as boohoo.com plc again reports impressive growth of 40% over the H117 period, ahead of our expectations of 33%. In addition to top line growth, there has been improvement in all KPIs, driven primarily by an optimised mix of marketing, price and promotional activity. This has delivered operational leverage and resulted in EPS growth of 124%. The company brand has strong momentum both in the UK and internationally, and coupled with continued investment in operational improvements and technology as well as international expansion, we believe will continue to deliver significant profitable growth.

Revenue growth for the half year to 31 August 2016 was 40% (41% CER) YoY, delivering sales of £127.3m, ahead of our expectations of £121.0m. Operating profit jumped 135% to £14.1m, adj. EBITDA increased 117% to £16.5m, a margin of 13% versus 8.4% in H116 and well ahead of our expectations of 11.0% or £13.3m, reflecting overhead efficiency gains. Growth in the UK market continues to be impressive at 38%. International sales represent 36% of total revenue, and for the first time the company splits out the USA segment highlighting the traction it has gained. RoE grew 41% (41% CER), USA grew 93% (81% CER) and RoW increased 17% (27% CER).

As a result of the strong H1 performance we increase our FY17 and FY18 forecasts. FY17 sales estimate increases by 2.4% to £260.2m (prior £254.0m), implying 33.1% YoY growth (full year guidance is for 30% to 35%). In FY18 it increases by 7.7% to £322.0m (prior £298.8m), implying a growth rate of 23.8%. We also increase our FY17 adj. EBITDA forecasts by 9.6% to £29.3m (prior £26.7m), or a margin of 11.2%, and by 19.9% to £35.5m (prior £29.6m) in FY18. We are forecasting EBITDA margin of 11.0% for FY18 as we expect the company to continue to invest significantly in growth and the customer proposition in order to maintain current momentum and continue to take market share.

Strategy of investing in gross margin via price and delivery promotions fully justified and driving strong improvement in KPIs. Active customer numbers increased by 28% YoY to 4.5m, while the number of orders increased 32% to 5.1m. The number of website sessions grew by 32% on the prior 12 months to 241m, while conversion rate improved by 10bps to 3.9% of sessions which is impressive given mobile and tablet use now accounts for 72% of sessions. Average order value jumped 9.6% to £37.16 while the number of items per basket increased 4.4% to 2.86.

PrettyLittleThing. boohoo has an option to acquire PrettyLittleThing before March 2017 and management is evaluating all aspects of a potential acquisition, the related management incentive and how the business will be best integrated and managed as part of the wider group.

Valuation. Following today’s upgrades the company is trading on an EV/EBITDA of EV/EBITDA of 35.1x and P/E of 53.3x to Feb 17, a 34% and 31% discount to ASOS respectively. The company continues to trade at a discount to the wider sector on an earnings basis, and we feel there is scope for the share price to continue to move higher as the company continues to gather market share and demonstrate the strengths of the business model.

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