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boohoo.com plc

boohoo Group Revenue +44%, Gross margin +170bps, FY19 Guidance upgraded

The boohoo Group (LON:BOO) has announced a 44% YOY increase in revenue for the four months to 31 December 2018 and upgraded full year revenue guidance for FY19. Trading over the key Christmas period has seen growth across all divisions and regions, bucking the trend of downbeat trading results seen across the wider retail sector. Of particular note, is this top-line progress has been delivered alongside a +170 basis-point expansion in Group gross margin YOY to 54.2%, at a time when heavy discounting has seen many of its peers’ profitability decline. This impressive gross margin performance YTD reflects the strengths of boohoo’s brand led model, giving it the ability to be more aggressive in its price positioning as and when the market demands. We believe the Group’s well invested model creates significant potential for further operational leverage as it builds towards its ambitious £3bn medium-term revenue target. The business is backed by a solid balance sheet with net cash of £189m at 31 December 2018, reflecting the strongly cash generative nature of the Group. The shares currently trade on an FY19 PE of 48.1x, falling to 41.1x in FY20. When taking into account forecast earnings growth the shares trade on 2.1x, a notable discount to ASOS and Zalando.

Divisional performance: boohoo revenue of £163.5m is +15% YOY (14% CER) with gross margin +150bps higher at 52.2%. PrettyLittleThing (PLT) revenue of £144.2m is +95% YOY (96% CER) with gross margins +110bps to 56.4%. Nasty Gal revenue of £20.6m is +74% YOY (76% CER) with gross margin -90bps to 54.4% reflecting rapid growth in the UK where promotional activity is being used to establish the brands market presence.

Guidance upgraded: Group revenue for the full year to 28 February 2019 is now expected to be in the range of 43% to 45% (previous: 38% to 43%). Management has also narrowed EBITDA margin guidance to a range of 9.25% to 9.75% (previously 9% to 10%). All other guidance remains unchanged.

Forecasts: We move our FY19 forecasts higher today to reflect the increased revenue growth guidance and improvement in gross margin delivered in P3. Our FY19 revenue forecast rises +2.5% with EBITDA +4.4%. We leave FY20 unchanged and will revisit at the time of full year results, expected 24 April 2019. Full detail of our change in forecasts in in exhibit 4 below.
Valuation: At last night’s close price, boohoo trades on an FY19 PE of 48.1x falling to 41.1x in FY20. When set against its strong growth profile this translates to a PEG ratio of just 2.1x.