boohoo.com plc (LON:BOO) has continued to trade strongly since the interim results on 27thSeptember and through the Black Friday weekend and key peak season period. As a result, management have increased FY17 guidance for sales growth to between 38-42%, against previous guidance of between 30-35%. Improved operating leverage in the business leads to an increase in EBITDA margin guidance to between 11-12% against previous guidance of c.11%. In addition, boohoo has announced the acquisition of 66% of PrettyLittleThing (PLT) for a cash consideration of £3.3m. PLT is expected to grow sales by at least 150% to c.£42.5m in the year to February 2017, implying that boohoo is paying a sales multiple of just c.0.1x vs a peer average of 2.0x. Applying boohoo’s sales multiple of 4.4x to PLT translates to a value of 11p.
- Upgrades FY17 and FY18 forecasts. Pre PLT conversion, our boohoo FY17 sales estimate increases by 5.1% to £273.6m (prior £260.2m), implying 40% YoY growth (full year guidance is for 38% to 42%). In FY18 it increases by 5.3% to £338.9m (prior £322.0m), implying a growth rate of 23.9%. We also increase our FY17 adj. EBITDA forecasts by 7.6% to £31.5m (prior £29.3m), a margin of 11.5%, and by 4.2% to £37.0m (prior £35.5m) in FY18. We are forecasting EBITDA margin of 10.9% for FY18 as we expect boohoo to continue to invest significantly in growth and the customer proposition in order to maintain current momentum and continue to take market share.
- boohoo is delivering premium growth and premium margin. The revised guidance for sales growth and margin demonstrates the strengths of the boohoo’s brand led model over established peers such as ASOS and Zalando who are growing at c.25% delivering single digit EBITDA margins of c.7%.
- The PLT acquisition. boohoo will acquire 66% of PLT for a cash consideration of £3.3m, which is pro rata to the March 2014 option agreement to acquire 100% for £5.0m. The remaining 34% will be used to incentivise PLT’s senior management team, and will be subject to them remaining with PLT over the next five years and achieving demanding revenue and EBITDA targets.
- How has PLT performed? PLT has grown very quickly: In the year to February 2016, sales grew by over 400% to £17.0m from £3.1m. In the first six months of this year, sales grew c.200% to £19.0m from £6.4m, and is expected to achieve growth in excess of 150% in the year to February 2017. We have assumed 150% growth for this year, to £42.5m, implying that boohoo has paid a sales multiple of c.0.1x.
- Impact of PLT to overall forecasts. We have consolidated PLT into our income statement, assuming two months impact to FY17 and full year impact in FY18. We expect sales contribution of £6.8m in the two months to FY17, delivering group sales growth of 43.5%, however, zero EBITDA contribution. boohoo.com plc EBITDA margin is therefore diluted to 11.2% from 11.5%. For FY18, we conservatively assume 25% sales growth for PLT to £53.1m, resulting in overall group sales growth of 39.8% and EBITDA margin of 3% or £1.6m.