Boohoo upgrades full-year guidance and confirms PLT acquisition

Online fashion retailer boohoo.com has raised its full-year guidance on revenue and EBITDA following another period of strong performance for the company since its Interim results in September. 

In its fifth upgrade of the year, boohoo said trading was strong during the Black Friday weekend, whilst peak season trading also continued to be encouraging. As a result, the Board now says it expects revenue growth of between 38 and 42% for the full-year, up from the 30-35% previously forecast.

It also upgraded its EBITDA margin forecast from 11% to 12%:

"boohoo continues to benefit from improved operating leverage in the business, and the Board anticipates boohoo delivering an EBITDA margin of between 11% and 12% in FY 17, against previous guidance of around 11%."

In a trading update released on Wednesday, the AIM-listed firm also confirmed it was acquiring a majority stake in PrettyLittleThing, the fashion retailer started by boohoo Co-CEO Mahmud Kamani's sons Umar and Adam:

"The boohoo Group today announces the acquisition ("the transaction") of 66% of PrettyLittleThing for a cash consideration of £3.3 million. The transaction is expected to complement the Group's presence both in the UK and internationally."

The boohoo Group will acquire 66% of PLT for £3.3m, with the remaining stake used as an incentive for CEO Umar Kamani and PLT management to continue the growth they have delivered thus far.

This is good news for investors, many of whom have been patiently waiting for boohoo to exercise the option agreement for PLT that was agreed in March 2014. PLT and boohoo already share several facilities and the acquisition makes sense for both parties who target similar markets.

PLT's financials are strong, with over 400% growth in FY16:

"PLT revenue2 grew by over 400% to £17.0m in the financial year ended 29 February 2016 (FY 15: £3.1m), and the Company delivered revenue of £19.0m in the six months to 31 August 2016 (H1 16: £6.4m).

 

PLT is expected to achieve revenue growth in excess of 150% in the financial year ending 28 February 2017 ("FY 17"), while being broadly breakeven at EBITDA level. In FY 18, the Group plans to review and invest in PLT's operations, including its warehousing, to ensure the Company is well positioned for the future. Accordingly, PLT's revenue is expected to grow at a similar rate to boohoo's in FY 18."

Broker Reports

Zeus Capital welcomed the results in a report published on Wednesday, saying it was upgrading its 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%."

Zeus also increased its FY17 adj EBITDA forecasts by 7.6% (£31.5m) on a margin of 11.5%, and its FY18 forecasts by 4.2% (£35.5m) on a margin of 10.9%:

"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."

Zeus said the results showed that the boohoo brand-led model was demonstrating its strengths against rivals ASOS and Zalando, "who are growing at c.25% delivering single digit EBITDA margins of c.7%".

Broker N+1 Singer also covered the announcement, saying the update effectively meant boohoo was going to deliver next year’s forecast this year. As a result, Singers expects to upgrade by 10%+ next year "on the higher base".

Speaking about the PLT purchase, Singers said it saw no reason why PLT's EBITDA margins shouldn’t converge with Boohoo's in time. Analyst Matthew McEachran said there was still no news on Nasty Gal, which many investors expect Boohoo to attempt to acquire.

boohoo Chairman Peter Williams said PLT was "always" going to be a good fit for boohoo, as he congratulated Mr. Kamani and his team for creating a "fantastic brand":

"...we are delighted to add this fast growing, international business to the Group.

 

We believe this is an excellent opportunity to extend the Group's overall customer appeal through two distinct, complementary brands while further enhancing the Group's strong growth trajectory. We look forward to building on PrettyLittleThing's success and we welcome Umar and his team to the Group."

Shares in boohoo opened up 7% this morning, after falling slightly in the past week.