boohoo share price, company news, analysis and interviews
Boohoo Group plc (LON: BOO) is a British online fashion and clothing retailer, aimed at 16–30 year olds. The business was founded in 2006, and in 2021 its first half sales were £976m. It specialises in own brand fashion clothing, with over 36,000 products.
An incredible portfolio of 13 market leading brands, bringing up to the minute clothing, shoes, accessories and beauty to millions of customers across the globe
The Vision
Boohoo´s vision is to lead the fashion e-commerce market globally, in a way that delivers for customers, people, suppliers and stakeholders. The focus is to maintain an outstanding customer proposition, with the latest fashion at great prices, combined with excellent customer service. To this end, they have a plan of continuous investment in our systems, infrastructure and technology to ensure they offer an optimal online shopping experience as they look to build for the future and further cement its position as a leader in global fashion e-commerce.
People
Our commitment to our people is woven into the very fabric of our business. They are the most important part of what we do. We started with a very small team in 2006 now we are huge global boohoo family.
Share price information.
boohoo brands
Our brands design, source, market and sell clothing, shoes, accessories and beauty products targeted at 16-40-year-old consumers in the UK and internationally.
boohoo
boohooMAN.com
KAREN MILLER
NASTY GAL
PRETTYLITTLETHING
coast
MISSPAP
OASIS
WAREHOUSE
BURTON MENSWARE LONDON
Wallis
DOROTHY PERKINS
Debenhams
Boohoo Sustainability statement
“We will continue to deliver outstanding growth whilst ensuring we reduce our impact on the planet. Like every other brand and business, will not be able to solve all the challenges we face immediately. Instead we will focus on areas where we can have the biggest impact first and we will report our actions and results in an open and transparent way.”
boohoo group plc (LON:BOO) have today published final results for the year ended 28th February 2022.
Investing for the future
· Significantly increased market share in the UK and US since FY2020. Total group sales +61% since FY2020
· Extended target addressable market through acquisitions, with up to 500 million potential customers
· Increased warehousing and distribution capacity, capable of supporting over £4 billion of net sales
· Plans on track for automation of Sheffield warehouse going live in FY2023, driving material efficiencies, and opening of new distribution centre in the USA in FY2024, transforming delivery proposition
· Strong revenue growth in the UK of 27% YOY, with product, price and proposition resonating with customers
· £125 million of Adjusted EBITDA, down 28% vs. last year, and broadly flat vs two years ago, despite significant freight and logistics cost inflation and record investments across multi-brand platform
· Capital expenditure of £261.5 million, funded using existing cash reserves, including freehold properties and the expansion and automation of the distribution network
2022£ million
2021£ million
Change on 2021
2020£ million
Change on 2020(1)
Revenue
1,982.8
1,745.3
+14%
1,234.9
+61%
Gross profit
1,041.1
945.2
+10%
666.3
+56%
Gross margin
52.5%
54.2%
-170bps
54.0%
-150bps
Adjusted measures(3):
Adjusted EBITDA(4)
125.1
173.6
-28%
126.6
-1%
% of revenue
6.3%
10.0%
-370bps
10.2%
-390bps
Adjusted EBIT(5)
84.1
149.3
-44%
107.0
-21%
% of revenue
4.2%
8.6%
-440bps
8.7%
-450bps
Adjusted profit before tax(6)
82.5
149.9
-45%
108.3
-24%
Adjusted diluted earnings per share(7)
4.39p
8.67p
-49%
5.88p
-25%
Statutory measures:
Profit before tax
7.8
124.7
-94%
92.2
-92%
Diluted (loss)/earnings per share
(0.32)p
7.25p
-104%
5.35p
-106%
Net cash(2) at year-end
1.3
276.0
-£275m
240.6
-£239m
John Lyttle, boohoo Group CEO, commented:
“Over the past two years, we have significantly increased market share in our core geographies of the UK and the US, and we have grown active customer numbers by 43% across the group to 20 million. Our focus over the past two years has been on investing to build a strong platform, with the right infrastructure, supported by increased capacity to better serve our customers. In the year ahead we are focussed on optimising our operations through increasing flexibility within our supply chain, landing key efficiency projects and progressing strategic initiatives such as wholesale and our US distribution centre. This will ensure that the group is well-positioned to rebound strongly as pandemic-related headwinds ease.”
Summary of FY2022 performance
The group has delivered further revenue growth, with revenues up 14% vs. last year, and 61% compared to FY2020, at a time when apparel markets globally remain below pre-pandemic levels. In our largest market, the UK, growth has remained strong, compounding on the exceptional growth delivered in the previous year. This demonstrates the strength of the group’s business model when product, pricing and proposition are all strong, and is reflected in our strong customer KPIs.
Growth has however been impacted by three factors: firstly, returns rates increased significantly in the second half of the year ahead of both expectations and pre-pandemic levels; secondly, consumer demand has been subdued as a result of lockdowns in key markets throughout the year; and thirdly, our proposition internationally has been negatively impacted as a result of extended delivery times.
The group has continued to invest significantly through the last year, including rebuilding and relaunching four new brands in FY2022, incurring costs that will be leveraged in the coming years as the brands scale. Our distribution network has been extended through the opening of two new distribution centres and progress on our automation project in Sheffield, expected to go live in the new financial year, continues apace. We have also announced our intention to open a distribution centre in the USA to transform our customer proposition.
Adjusted EBITDA, at £125 million, has remained broadly flat compared to pre-pandemic levels and has declined compared to the excellent results delivered in FY2021, due to lower growth than anticipated, a significant increase in outbound carriage costs due to a lack of airfreight capacity and inbound shipping costs rising equally steeply, collectively impacting EBITDA by £60 million, as well as higher marketing costs as we invest in our newly acquired brands.
Financial highlights
· Revenue £1.983 billion, up 14% (14% CER(8)), and up 61% on 2020
o UK growth at 27% emphasises good brand positioning and strength of brand portfolio
o International performance impacted by COVID-19 challenges, down 3%
· Growth of 14% achieved while set against exacerbated comparative year, highlighting very strong two-year performance: UK up 77%; international up 40%
· International revenue is now 39% of total (2021: 46%), reflecting strong organic UK growth and mix impact from brands acquired in the last two years
· Gross margin 52.5%, down 170bps from 54.2% (2020: down 150bps)
· Adjusted EBITDA £125.1 million down 28%, with Adjusted EBITDA margin of 6.3% (2021: 10.0%; 2020: 10.2%), after £60 million of pandemic-related shipping cost headwinds and investment in launching our new brands
· £261.5 million capital expenditure investment, building infrastructure for growth, including freehold properties and significant expansion and automation of distribution network
· Strong balance sheet with net cash of £1.3 million (2021: £276.0 million; 2020: £240.6 million). Operating cash flow of £10.3 million (2021: £201.1 million; 2020: £127.3 million). New £325 million RCF agreed in March 2022, underpinning the group’s investment programme
Operational highlights
· Significant investment into broadening our operational and warehouse capacity, ensuring global infrastructure is fit for the future and ready for sustained growth, and to support over £4 billion of net sales
· 20 million active customers, up 10%, and up 43% on 2020
· Two new UK distribution centres, Daventry and Wellingborough, launched and now fully operational
· Automation fit-out of Sheffield warehouse commenced with expected completion in September 2022, unlocking additional operational efficiencies and multiple service enhancements
· Announcement of plans for US distribution centre in 2023, supporting the group’s next phase of growth
· Relaunch of Debenhams, adding a new dimension of a digital department store to the group’s portfolio and extending the group’s target addressable market
· Integration and relaunch of the newly acquired Dorothy Perkins, Wallis and Burton brands, complementary additions to the group’s scalable, multi-brand platform
· Purchase of new offices in the heart of London’s West End, housing the group’s London-based brands and their employees
Sustainability and governance highlights
· Agenda for Change process completed, with action items established into business as usual operations, following publication of fifth Leveson report in March 2022
· Economic Impact Assessment conducted. Commitment to investing over £500 million and creating over 5,000 jobs over five years, highlighting the group’s significant ongoing contribution to the UK economy
· Board strengthened with appointment of two non-executive directors, including one to chair the newly constituted ESG Committee
· Publication of the group’s sustainability strategy, further establishing ongoing commitment to transparency. Significant progress made against our 2021 goals
Outlook and Guidance
Heading into the new financial year, the group is planning the business on the basis that the pandemic-related external factors impacting performance in FY2022 will continue for the year ahead. The group’s priorities therefore are focussing on optimising its operations, including:
· Sourcing and freight
Targeting increased sourcing from near-shore markets, leveraging the flexibility that exists in the group’s diverse supplier base to reduce lead times that have been negatively impacted through global supply chain challenges in FY2022 and exposure to fluctuating inbound freight costs that remain elevated
· Stock management and returns
Operating with lower levels of inventory through tighter stock management and increased levels of open to buy, giving greater flexibility to react to changes in demand mid-season. Whilst returns rates are expected to remain around current levels during FY2023, the group will annualise material increases in return rates in the first half of the new financial year.
· Cost management
The group has commenced a cost efficiency programme, and by scaling recent acquisitions that have already received significant investment, overheads across the group can be leveraged.
· Unlocking strategic enablers
Focusing resources and capital investment into key projects to support strategic growth, including: onboarding new wholesale partnerships; upgrading the Debenhams technology platform; going live with automation in our Sheffield distribution centre; and progressing our US distribution centre ahead of go-live in 2023
By focusing on these areas, the group will be in a position of greater financial and operational strength, and well-positioned to rebound strongly as pandemic-related headwinds ease, allowing it to capitalise on its significantly expanded target addressable market, returning towards normalised growth rates of 25% per annum post-pandemic and adjusted EBITDA margin rebuilding back to 10%.
For the financial year ending 28 February 2023, the group is focussed on retaining the significant market share gains that it has made over the course of the last two years. With current short-term cost inflation impacting consumers, the group intends to maximise efficiencies in its operating model and mitigate where possible before passing prices onto consumers.
It is anticipated that revenue percentage growth will be low-single digits, and adjusted EBITDA margins for the year are expected to be between 4% to 7% as the group expects to continue to be impacted by pandemic-related factors that negatively impact costs within its supply chain and international competitive proposition.
In the first half of the financial year, the trends impacting performance in the second half of FY2022 are expected to continue, including: uncertain consumer demand; tough comparatives as well as reduced levels of net sales growth due to the annualisation of elevated returns rates year on year; and sustained freight-related headwinds. As a result, the group currently expects revenue growth to be broadly flat in the first half of FY2023, as relatively higher returns rates lead to net sales being down year on year in the first quarter, with a return to growth in the second quarter. For the first half of FY2023, Adjusted EBITDA margins are expected to improve from the level achieved in the second half of H2 FY2022.
Performance is expected to improve in the second half of the year with sales growth accelerating as the group annualises high returns rates and normalising consumer demand, with profitability improving as it benefits from key strategic initiatives and leveraging of overheads.
Other financial guidance for FY2023 is outlined below:
· Underlying depreciation and amortisation of approximately £60 million
· Net interest charge of £7million to £8 million
· Effective tax rate of circa 28%, above the rate of UK Corporation Tax due to disallowable expenditure
· Capital expenditure of £100 million to £120 million, primarily relating to investments in our distribution network expansion and automation as well as the group’s technology platform; and
· Adjusting items of approximately £60 million, of which around £45 million relates to non-cash items, including: share-based pay, acquisition intangible amortisation, exceptional costs of Sheffield automation and warehouse commissioning costs
Longer-term competitive positioning and opportunity to take market share unchanged
The group expects to emerge from the pandemic in a far stronger position compared to two years ago. Reflecting significant and ongoing investments in its platform, brands, distribution and people, the group has:
· A broader portfolio of brands and a significantly larger target addressable market with 500 million potential customers across key markets
· Greater infrastructure capacity capable of supporting in excess of £4 billion of net sales, with automation investments driving future efficiencies
· Committed to opening a new distribution centre in the USA, significantly strengthening the customer proposition
· 20 million customers globally
· Numerous growth opportunities through the group’s direct to consumer proposition, Debenhams and strategic partnerships with select partners globally.
We remain extremely confident in the group’s future growth prospects, and as short-term demand uncertainty and material cost headwinds as a result of the pandemic unwind, the group’s belief that it continues to be capable of executing its strategy aimed at leading the fashion e-commerce market remains unchanged.
¨ Q1 financial highlights: Boohoo Group plc (LON:BOO) revenue of £445.7m is -8.3% YOY vs. a strong comp (Q1 FY22 revenue +32.1%), in line with Zeus’s forecast and management’s previously stated guidance. Gross sales growth remained positive +9% YOY but was offset by higher returns driven by normalisation of returns rates due to product mix change. In our view the impact of lockdown restrictions over the past two years limits the usefulness of assessing the Group’s progress on a YOY basis. Over the three-year pre-pandemic period revenue is up 75%, (CAGR of 20.5%), reflecting strong market share gains across its expanded, multi-brand platform. Q1 gross margin of 52.8% is 220bps lower YOY,versus Q1 FY22 that benefitted from high levels of full price sell through but is 240bps higher than H2 FY22 and improved through the quarter which we see as a strong performance given widely reported pandemic-related and inflationary cost headwinds.
¨ By region: UK revenue was 0.9% lower YOY versus an exceptional prior year comp (Q1 FY22: +50.0% YOY) but has improved MoM in the quarter, returning to growth in May. Normalisation of return rates continued to impact net sales in Q1, with gross sales +21% YOY as the Group’s proposition continues to resonate with customers, offset by higher returns. Growth in Q2 will benefit from less challenging comps (Q2 FY22: 19.3% growth) whilst the headwind of increasing returns rates is set to annualise in H2. In the US, revenue was 28.0% lower YOY as well flagged fulfilment issues continue to impact delivery times. Ultimately, this disruption will be resolved through the establishment of the Group’s first US distribution centre due to go live in mid-2023. This has the potential to enable next day delivery to c.50% of customers, and delivery within 3 days to c.90% of customers. ROE revenue decline of 8.8% reflects the impact of increased delivery times, partly offset by contribution from wholesale, whilst ROW saw 15.1% growth YOY, driven by demand from wholesale partner Alshaya in the Middle East.
¨ Strategic priorities: Progress has been made against action points aimed at optimising operations, including a 10-percentage point increase in short-lead time product mix YOY and improved inventory turn with lower levels of stock held vs. FY22 year end. Sheffield automation remains on-track with US DC due to launch mid-2023.
¨ Outlook: Guidance is unchanged versus 6 weeks ago with a return to growth anticipated in Q2 and growth rates improving in H2 as high return rates are annualised. We anticipate both revenue and profitability will be H2 weighted with Zeus forecasts unchanged today.
¨ Investment case: Over the past three years Boohoo has delivered significant and ongoing investment in its platform, brands, distribution, and people and now boasts a broader portfolio of 13 brands, targeting an addressable market of 500 million potential customers. Short term and transient cost headwinds, outside of the control of the Group should not negate from the long-term structural opportunity presented by the ongoing shift to ecommerce that BOO is strongly positioned to capitalise on. A resilient performance in the UK offers a blueprint for the international growth opportunity that we continue to believe exists, once cost headwinds stabilise.
¨ Valuation: Boohoo Group trades on FY23E EV/Sales of 0.4x falling to 0.3x, an EV/EBITDA of 7.2x falling to 5.3x and a PE of 26.2x falling to 16.4x, representing a c.60% discount to peer average, presented in exhibit 2. Our DCF model implies upside of 131%, based on conservative growth assumptions, well below the Group’s medium-term guidance.
¨ Financial performance: Boohoo Group plc (LON:BOO) revenue of £1,982.8m is +13.6% YOY and +41.3% versus FY20, representing significant market share gains versus global apparel markets that remain below pre-pandemic levels (UK: +27.3% versus market -3%, US +3.8% versus market -9%). The UK delivered a standout performance +27.3% YOY with strong growth across both established and new brands. Demand in international markets has been impacted by extended delivery times due to constrained airfreight capacity, a headwind that we see as transitory, and that will be in part resolved by the launch of the Group’s US distribution centre, expected to go live in summer 2023. Gross margin of 52.5% is 170bps lower YOY, a resilient performance in the face of £22m in additional inbound freight costs. EBITDA of £125.1m down 27.9% YOY, reflecting £38m in additional outbound carriage costs, as well as an increase in marketing investment to combat weaker consumer demand and investment in growing new brands. Capital investment of £261.5m provides infrastructure to support future growth, including freehold properties, and significant expansion of warehouse capacity and automation. A new £325m RCF provides significant cash facilities in addition to year end net cash of £1.3m following record levels of capital expenditure, investment in working capital due to extended supply chain lead times as well as investment in new brands.
¨ Strategic progress: Group KPIs have improved YOY, with customers shopping more frequently, and spending more with the Group. Boohoo has transformed its brand portfolio in recent years, extending its total addressable market to more than 500 million customers. This compares to current active customers of 19.9 million, representing the significant growth opportunity that remains.
¨ Outlook: Current guidance assumes pandemic-related external factors impacting performance in FY22 will persist across FY23. For FY23 management expect low-single digit percent revenue growth, and adjusted EBITDA margin in the range of 4% to 7%.
¨ Forecasts: Our revised forecasts reflect updated guidance. We also introduce FY24E forecasts set modestly to reflect current headwinds. See exhibit 4 for detail.
¨ Investment case: In our view, Boohoo is emerging from the significant upheaval of the pandemic in a far stronger position versus two years ago. It has made significant and ongoing investment in its platform, brands, distribution, and people and now boasts a broader portfolio of 13 brands, targeting an addressable market of 500 million potential customers. It has established infrastructure capacity capable of supporting more than £4 billion of net sales, with automation investments driving future efficiencies and plans for its first international distribution centre underway, revolutionising its delivery proposition in the US. Numerous additional growth opportunities exist across its direct-to-consumer proposition, Debenhams and strategic wholesale partnerships with select partners globally. Performance in the UK offers a blueprint for the international growth opportunity that exists when transient pandemic cost headwinds abate.
¨ Valuation: At last nights close price Boohoo Group trades on FY22E EV/Sales of 0.5x falling to 0.4x, an EV/EBITDA of 9.2x falling to 6.9x and a PE of 33.2x falling to 20.8x. Near term growth and profitability is being impacted by cost inflation that we see as transitory in nature and likely to abate over the medium term as freight and logistics costs stabilise. Any improvement in cost headwinds in the current year presents upside potential to our forecasts.
Boohoo Group plc (LON:BOO) Q4 revenue growth of +7% YOY is ahead of ZC est. of +4.9%. Moderation in growth over FY22 reflects tough prior year comps, with the closure of physical retail driving strong growth over Q4 FY21. On a two-year basis, against a pre-COVID comparative of Q4 FY20, revenue was +48% (equating to a CAGR of 21.7% from FY20-FY22). Return rates remained elevated through Q4, offsetting much stronger Q4 gross sales growth of +26% YOY, and +57% on a two-year basis (versus Q4 FY20). Increase in the returns rates (ZC est. c.32% in Q4 FY22 versus c.20% in Q4 FY21) reflects normalising product mix, with a greater proportion of dresses and occasion wear versus a higher mix of casual and loungewear in the prior year. This trend is expected to continue over H1 FY23 as the normalisation in product mix annualises.
By region, trading in the UK remains resilient (ZC estimates Q4 FY22 UK revenue +15-20% YOY) and reflects ongoing market share gains in the Group’s largest market (c.63% of Group). International sales remain impacted by longer customer delivery times due to pandemic-related supply chain pressures. Delivery into the US continues to be constrained by reduced airfreight capacity. The Group remains on track with plans for a US warehouse, to go live in Summer 2023. There was a pleasing return to growth in ROW driven by wholesale demand, including Alshaya which operates the Debenhams brand across the Middle East. Wholesale presents an attractive growth channel for the Group, particularly in markets that are more challenging to serve. Sales to Russia are suspended, having represented less than 0.1% of Group revenues.
FY22: FY22 revenue is +14% YOY (versus FY21: £1,745m) and is +60.6% versus FY20 (FY20: £1,235m), a 2-year CAGR of 26.7.% FY22 EBITDA is expected to be approximately £125m, equating to an EBITDA margin of c.6.3%.
Zeus Capital Forecasts and outlook: We update our FY22 estimates to reflect today’s announcement. Revenue of £1,983m is +0.5% versus prior estimate of £1,973m with EBITDA of £125m marginally below the £128.3m previously forecast. FY23E numbers are unchanged, and will be revisited alongside FY22 full year results, to be published on 4 May 2022.
Valuation: Following a sharp de-rating in share price, BOO trades on FY22 PE of 15.7x falling to 10.8x in FY23, representing more than 50% discount to peers. We believe the consistently strong UK performance is testament to the Group’s strong customer proposition across price, product, and service, with international weakness the result of transient market headwinds that we believe will normalise over time. Our DCF implies +80% upside (based on heavily moderated growth assumptions and an increased discount rate) with the shares appearing oversold at these levels.
Publication of international factory list: Today’s publication of Boohoo Group plc (LON:BOO) international factory list meets its pledge for full supply chain transparency within 12 months of the Independent Review into its supply chain, published by Alison Levitt QC in September 2020. The list details c.1,100 factories following an extensive mapping and audition exercise that was begun in 2020. The Group has also announced its intention to sign the International Accord for Health and Safety. This is a legally binding agreement that governs working conditions for garment workers in Bangladesh.
Agenda for change substantially executed: A total of 17 recommendations were made in Alison Levitt QC’s Independent Review which were broken down into 34 deliverables. To date the Group has completed 28 of these targets, with those remaining expected to be delivered in the coming months. Execution on these objectives is overseen by a KPMG review cycle.
Agenda for change now “business as usual”: In addition to the factory list, the Group has today published the fourth of Sir Brian Leveson PC’s reports to the Board providing independent oversight on the implementation of the Agenda for Change. “applaud the enthusiasm that all at boohoo have demonstrated for the Agenda for Change Programme and chart the very real progress that has been made in relation both to the recommendations set out in the Review and also the wider ethical programme upon which the Group has embarked. It marks the movement of A4C into business as usual which is not, of course, the beginning of the end of the process but merely the end of the beginning”. We concur that the spirit and pace with which the Group has moved to enact all remedial recommendations is testament to its commitment to not only address any shortfalls in its supply chain, but to establish the benchmark for the industry’s supply chain standards. In addition to this Boohoo has made material progress in its sustainability agenda with an estimated 20% of its product ranges to be sourced from sustainable or recyclable materials by this autumn, with this to double to 40% by next summer.
Valuation: An FY22E PE of 22.0x falling to 17.0x in FY23E is close to 5-year ratings low and is at odds with Boohoo Group’s ongoing track record of profitable and cash generative growth. Our conviction is supported by our intrinsic DCF modelling that derives a share price of 418p, some 48% ahead of current levels. Results for the six months ended 31 August 2021 will be announced on 30 September 2021.
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