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UK online fashion - Style over substance?
boohoo group Plc ASOS plc
boohoo^ (BOO, Hold at 34p) - FY24F in line, CFO to step down with immediate effect
boohoo group Plc
Boohoo has released an update confirming FY24 trading is in line with market consensus and announcing the appointment of Stephen Morana as Group CFO.
UK Retail - New Year Trading Updates
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Estimate changes: boohoo Group (BOOH.L, Price 35.8p - Hold - TP: 36.0p)
The challenge we find with Boohoo is building a pathway to sustainable cash generation, and with a return to growth pushed further out, unfortunately so too are our expectations for cash. The focus on more profitable sales means Boohoo's customer base and order volumes will continue to shrink into
Boohoo is capturing significant cost deflation and is reinvesting into price and ‘test and repeat’. Automation is delivering significant efficiencies in distribution and overhead base has been right sized. The distribution capex projects are complete, and capex should fall next year, supporting the start of FCF recovery. Recovery in shares now depends on reigniting sales growth, where some of the £125m of annualised cost savings will be used over the next 18 months. The improvement in the US fulfilment proposition, growth at Debenhams, and reinvestments into price, newness and marketing provide the ingredients for a return to sales growth. While the shares look attractive trading at only 1.0x price to book value, a lack of visibility on the timing of sales growth recovery keeps us on HOLD.
Boohoo’s 19% H1 sales decline exemplifies the persistent inflationary pressures playing out within the digital marketing landscape. Virtual retailers are increasingly turning their attention to ongoing order profitability and management has revised sales expectation to c-15% (previously c-5%) for the full year. Our Buy recommendation remains with a reduced DCF derived TP of 40p (70p previously), we are more positive on self-help initiatives taking shape across systems and warehousing.
boohoo^ (BOO, Hold (from Buy) at 31) - Revised outlook for boohoo: from cautious optimism to Hold
We had set out the path for boohoo to deliver a substantial margin recovery over FY25 and FY26, flagging boohoo as one of the sector’s big recovery prospects, based on a number of factors ranging from the new brands to the successful opening of the US warehouse. While there is progress on most fronts, we need sales to stabilise, which remains the test into 2024.
1H’24 trading was weak with net revenues -17% yoy, including -10% in core brands and sharper declines in non-core brands where the company focused on profitability. Adj. EBITDA margin was +30bps yoy to 4.3% despite investments into price, lead times and marketing, reflecting significant cost deflation, strong inventory management and automation benefits. However, current trading remains tough with guidance for FY’24E sales cut to -12% to -17% (previously flat to -5%), and adjusted EBITDA £58m-70m (4.0% to 4.5% margin), a 13% cut to prior guidance. While the shares trade at an undemanding 0.3x 12m forward EV/Sales and 6.5x 12m forward EV/EBITDA, a return to consistent sales growth is needed to turn more positive on the shares, although easing cost pressures and efficiency savings provide support to invest behind sales growth.
Initial Equity Trading Comments - 3 October 2023
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Interim results, 6 months to 31st August 2023 H1 FY24 adj. EBITDA is £31.2m, -12% YoY, versus company compiled H1 consensus at £26.6m, thus EBITDA margins were 4.3%, +30bps YoY (FY23: 3.6%; H1 FY23: 4%; H2 FY23: 3.1%) reflecting improvements in gross margin, distribution cost efficiencies from automation and overhead cost reduction. H1 Group sales were -17% YoY, below consensus expecting -12% YoY and guidance for H1 sales to be down between -10% YoY to -15% YoY. However, revenues in core brands, declined -10% YoY, meaning there were more significant declines in other labels following the decision taken to target more profitable sales. Group P1 sales were down -17% YoY (cc) with a broadly similar trend in P2, at -18% YoY (cc). By geography UK, ROE, USA and ROW P2 YoY (cc) sales were -19%, -18%, -9% and -28% respectively versus P1 YoY (cc) sales at -19%, -14%, -14% and -23%. We note active customers are down -17% YoY and average purchase frequency was -7% YoY. H1 gross margins were up +90bps YoY versus consensus expecting -10bps YoY (H2 FY23: -190bps YoY), with the improvement reflecting tighter inventory management. Pleasingly, inventory is -35% YoY having been -36% YoY at the FY23 Finals. Free cashflow outflow was -£12.9m reflecting capex on strategic projects. As of today, there is £290m of liquidity headroom (previously: £330.9m at the FY23 Finals) on the Group’s £325m RCF. Outlook & view Management now expects full year revenues to decline between -12% YoY and -17% YoY in FY24 (previously: flat YoY and 5% YoY) given slower volume recovery than previously anticipated; pre-statement consensus expects FY24 sales declines of -4% YoY. However, in line with prior guidance, adj. EBITDA margins are expected to be between 4% and 4.5%, versus pre-statement consensus at 4.1%, given progress made on gross margin and cost control. All in all, full year EBITDA is expected to be between £58m to £70m. Pre-statement full year FY24 EBITDA consensus was £70m. Capex is anticipated to be £75m (previously: £80m to £90m). Medium-term guidance remains for adj. EBITDA margins to return to 6% to 8%. While we concede margin headwinds should now start turning into tailwinds, we harbour some concerns about the general health of the boohoo brands, and the setup of a new US warehouse this year will likely not come without operational risks.
boohoo^ (BOO, Buy at 32p) - FY24F guidance revised down
H1 FY24 Results: H1 FY24 performance reflects the challenging macro-economic backdrop, with weaker consumer sentiment impacting demand through H1. Group revenue of £729.1m is 17.4% lower YOY (H1 FY23: £882.4m), with decline across all geographies (UK: (19.0)%, USA: (11.4)%, ROE (16.0)%, ROW (23.2)%). Revenue from core brands (Boohoo, Boohoo Man, PLT, Karen Millen and Debenhams) is down 10%YOY, in line with previous management guidance. Sales have fallen more sharply across the Group’s other labels, reflecting intentional, managed decline as it repositioned these smaller brands to focus on profitable sales through its Debenhams platform. Input cost deflation, in the form of lower freight rates and factory gate prices, is being reinvested in price reductions and an expanded range of entry-price point products to reinforce the Group’s value proposition. The average selling price has fallen YOY, in comparison to the UK clothing market which has seen price inflation of 8%. Self-help action on operating costs, combined with efficiency gains from automation have helped to improve profit margins, with gross margin of 53.4% +90bps and EBITDA margin of 4.3% +30bps, despite lower sales. Net debt of £35.0m is +£24.6m after £36.6m of capex. The Group has a strong
Key Stocks boohoo (BOOH.L) (Buy, TP 75.0p) - Interims expected to be in line, all eyes on recovery (1H, Tuesday 3 October) Greggs (GRG.L) (Hold, TP 2,500p) - PBT progress - but no upgrades expected (3Q, Tuesday 3 October) Volution Group (FAN.L) (Buy, TP 445p) - Tougher markets vs regulatory positives (FY, Thursday 5 October) J D Wetherspoon (JDW.L) (Add, TP 825p) - 2023E ended strongly (FY, Friday 6 October) Mitie# (MTO.L) (Buy, TP 116p) - Strong margin momentum and balance sheet optionality (P1 update, Tuesday 10 October) Stocks Previewed Alpha Financial Markets Consulting, Ashmore, boohoo, Brooks Macdonald#, Greggs, J D Wetherspoon, Marston's#, Mitie#, Norcros, Rathbones Group#, Speedy Hire#, Topps Tiles#, Volution Group
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boohoo is ticking off the milestones, successfully launching the US warehouse, recovering cost and margin tailwinds, building out the new portfolio of brands and the Debenhams platform, and setting up the business for a wider recovery into 2024. Buy, TP 75p.
2- 6 October 2023
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Naomi Campbell’s collaboration with PLT also launched at New York Fashion week, so we should get a sense of how well PLT’s customer base is reacting to a competitive delivery proposition on key product releases.
boohoo’s recovery plans are making steady progress, looking to capture deflation to reinvest in the offer, and opening the US warehouse, a key part of the US trading recovery. The interim results should be in keeping with expectations, with the excitement coming from 2H developments. The shares continue to reflect all the risks rather than any recovery potential.
A similar bill failed to pass Congress last year. However, it is clear that both the tariff exemption and more importantly, the ability to bypass legislation on illegal items (e.g Xinjiang cotton) is under increased scrutiny, both of which would put pressure on SHEIN’s US$8bn+ US revenue stream. We reiterate our Buy rating and 75p target price.
FY23 results saw Boohoo reveal post-covid updated mid-term aspirations and our first insight into the art of the possible against a (more) stabilised backdrop. From where we sit, aspirations for an adjusted EBITDA margin of 6-8% simultaneously feel a little underwhelming, and a little ambitious. To
The shares remain as cheap as ever, trading below a 10-year DCF with zero terminal value and factoring in no sign of recovery. We see a clear buying opportunity ahead of autumn and 2024 recovery. Buy.
The boohoo Prelims gave evidence of control and stabilisation which now prompt us to dismount from the fence. boohoo has never in our view been very transparent on its buying model. But the company’s conviction that it is now able to return to a full-on test-and-repeat buying model should allow it to function properly as a sales driving machine. Additionally, the new US distribution centre will be absolutely key for moving the US sales onto a higher level. Much of the focus on the day was on the lack of surprise and the cashflow/working capital control. But we are now thinking more about the medium/longer term prospects as boohoo can work against a much more favourable supply chain backdrop where previously it struggled with both (linked) demand and supply issues. This said near term trade remains weak, there is clear execution risk with the US DC and the company’s view of recovered EBITDA margin prospects at 6-8% looks some way below historic levels. But we think the worst is over here and boohoo has protection from demand pressures from its ability to invest falling input costs into price. Our DCF supports an increased target price of 70p (+17%).
boohoo’s results and guidance represent a strong performance in tough conditions, driving working capital improvements, with enacted cost savings and margin tailwinds supporting EBITDA growth for the year ahead. Given the ASOS-related weakness into this statement, we expect the shares to rebound. The shares trade on 5x FY25 EBITDA and well below a 10-yr DCF with zero terminal value, another value flag.
Finals, 52 weeks ending 28th February FY23 adj. EBITDA has come in line with recent guidance, at £63.3m, -49% YoY, versus consensus at £62m, which implies EBITDA margins fell to 3.1% in H2 (H1: FY23: 4%, H2 FY22: 4%) with profitability impacted by higher return rates and ongoing pandemic-related freight and COGS costs. Full year gross margins were down 190bps (H1: -210bps), reflecting Covid-related cost pressures on raw materials and freight, and stock clearance. Full year Group sales were in line with expectations and were -11% YoY, with P4 sales -17% YoY (cc) This compares with P1: -10% YoY, P2: -13% YoY, P3: -13% YoY, (all cc). We note Active customers are down 10% YoY. By geography, P4 YoY (cc): UK sales were -20% (H1: -4%, P3: -11%), ROE sales were -14% (H1: -4%, P3: -11%), USA sales were -3% (H1: -33%, P3: -17%), ROW sales were: -36% (H1: +8%, P3: -15%). Net cash was £5.9m although free cashflow was strong up £30.2m after a sizable reduction in capex and inventory - pleasingly inventory is -36% YoY. As of today, the group has £330.9m of liquidity headroom. Outlook & view Management is implementing a ‘Back to Growth’ strategy and now expects revenues to decline between flat and -5% in FY24 with H1 revenues down as much as 10% to 15% as the company focusses on profitable sales (consensus FY24 sales growth is: +2% YoY). Therefore, adj. EBITDA for FY24 is expected to improve YoY as a result of operational gains, cost efficiencies and cost deflation in the supply chain. As such, EBITDA margins are now expected to be between 4% and 4.5% (consensus: 3.9%) which implies EBITDA of between £69m to £78m (consensus: £70.5m). Capex is anticipated to be between £80m to £90m while year-end net debt / adjusted EBITDA is expected to be approximately 1x, reducing thereafter. Medium-term guidance is now for adj. EBITDA margins to return to 6% to 8% and getting back to double digit revenue growth Whilst margin tailwinds are supportive for improving profitability this year, returning margins to medium-term targets will require revenue growth. The ongoing decline in active customer growth suggests churn remains high and does not bode well for the boohoo brands’ health. We remain at HOLD
boohoo^ (BOO, Buy (from Hold) at 38) - Upper end of FY24 guidance points to 11% upgrade
FY’23 results came in line with expectations with net revenues down -11% yoy and adj. EBITDA margin of 3.6% (down -270bps yoy). However, the current trading environment remains tough with sales in 1H’24E expected to decline -10% to -15% yoy. Guidance for FY’24E is for net revenue of flat to -5% yoy (consensus +2%) and adjusted EBITDA of between £69-78m at a 4.0% to 4.5% margin (consensus £70.5m). Medium term margins are now expected to be in the 6-8% range vs. the historical guidance of 9-10%. This is in line with our thesis that the margin pressures on the company are structural given the changes in cost, competition (Shein) and return rates. The shares appear cheap at 0.3x 12m forward EV/sales (vs. 2.5x pre-pandemic) and 8x EV/EBITDA, but with our forecast of negative FCF till FY’25E, debt on the balance sheet, diminished prospects in its key markets and lack of visibility on the scalability of its newer brands, we believe there is better value elsewhere for now.
FY23 revenue and EBITDA is a marginal beat vs. estimates with cash generation the standout beat. Market conditions are challenging, reflected in lower FY24 growth, but strategic progress is delivering improved profitability, with medium term guidance confident in a return to double-digit growth and increased profitability.
BOOHOO^ (BOO, Hold at 40p) - FY23F preview
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Closing out on FY23, boohoo’s share price and forecasts focus on the challenges and headwinds of last year, rather than the rising tide of tailwinds, the US warehouse opening and the potential for Debenhams and the new stable of brands. The shares trade on c.7x FY25 EV/EBITDA and we upgrade from an Add to a Buy recommendation.
Like the wider sector, BOOH shares have bounced. They no longer sit below our ten year DCF with zero terminal value, but not by much. With nothing in forecasts for recovery over the next two years, there is opportunity for material upside on a medium term view.
Customers have enjoyed the ride, but shareholders need to be rewarded too The return to store and unwind of the pandemic peaks in online penetration certainly came quickly. Over 2022, the players also faced spiking raw material and freight costs, topped off with promotional intensity and strike action over peak trading. The perfect storm was a rude awakening for a sector that was so used to easy growth. Now, there are signs that a pivot to profitability is underway. Companies may have to be less generous to customers, risking slower growth, but investors will be rewarded with better margins. A more competitive channel, but we see a return to growth in 2023 and beyond It was an error to extrapolate the steep increases in penetration during the pandemic. Would extrapolating the correction make the same mistake twice? While the channel may be slightly less attractive for customers in the near term, longer term there are sound arguments for a further shift to online. Retailers with a foot in both physical and digital camps still expect the channel to grow. Upgrading Boohoo: unlike peers its turnaround is less based on a strategic overhaul Market sentiment on Boohoo is low, but we see reason to believe that the profitability trough is near. The private label player, which gains from a value-conscious consumer, is more geared to the improving supply chain outlook than its peers. A return of China airfreight belly capacity lowers sourcing costs and drives a more fashionable proposition. A faster International delivery promise increases the chances of a return to growth. These should drive stock-turn back to the industry-leading performance of years past, supporting FCF through working capital inflows. Valuation on recovered CY25 earnings, and our DCF, is compelling. Target price GBp 65. We set out possibilities for a potential market update on medium term targets at Zalando. In contrast to the higher quality Zalando, it does not take as much to...
boohoo group Plc Zalando SE
Boohoo’s P3 trading update has resulted in further profit forecast downgrades, in our case more significantly to FY2/24 where we now expect a more difficult 1H to result in an unchanged level of loss against previously a move back towards breakeven. The breakeven is now achieved in FY2/25 in our forecasting. In boohoo’s own “adjusted EBITDA” terms this equates to adj EBITDA margins of 3.5% (as guided) in FY2/23, 3.6% and 6.2% over the three forecast years. Post COVID disruption impacts have de-stabilised most virtual retailers to a significant degree. In boohoo’s case they have also highlighted the vulnerability of its distribution mis-match with its geographic sales aspirations. We have sympathy with a company encouraged to grow fast being impacted by unprecedented conditions albeit mistakes have clearly been made here as well. We are conscious that forecasting (our own included) has proved highly inaccurate here and that in theory virtual retailers should be capable of a more flexible response to changing conditions than those with more fixed cost bases. So we may prove to have been overly cautious in our expectation. Our target price revision (-50%) reflects the difficulties in gauging medium-longer term cash flows given the current volatility. Hopefully the confluence of post-COVID demand/channel normalization and the various negative disruptions to the ability and cost to fulfil will bottom-out in calendar 2023.
Simply not having a wonderful Christmas time Boohoo completed the scheduled reporting season for our online retail coverage with another disappointing sales performance for the pure players. P3 sales were -13% cFX yoy (vs -10% expected). Gross margins were also worse than expected. The regional mix was less surprising, with the US lagging the group as extended delivery times negatively impact the customer proposition. The US warehouse is ramping up, but the first brand going live in September is a bit later than we had hoped. That all said, guidance for FY23 adj. EBITDA was in line with market expectations. What hit the shares today was management''s comments on FY Feb-24. We think consensus will cut EBITDA estimates by c.15-25%: we cut our forecast by 36%. Boohoo is another online retailer whose turnaround is tough to have confidence in. We remain on the side-lines with a Neutral rating. Discounting too much causing a January / February hangover Boohoo guided FY Feb-23 sales of -12% yoy. This implies a sharp drop off from -13% in P3 to c.-23% in P4 (January/February). The equivalent period last year was highly promotional, boosting sales but hitting gross margins c.-780bps. Boohoo expects to win that margin back by removing unprofitable sales, hence expects FY23 Adj. EBITDA margins broadly in line with consensus. 2023 a tough year to get growth and margins back in shape Without guiding on FY Feb-24, we understand Boohoo''s initial expectations for adj. EBITDA are closer to the implied H2 23E margin (c.3%) suggesting a margin decline rather than improvement to cons. c.4.5%. Managing costs and headcount are unlikely to be enough to offset inflation or US facility ramp-up costs. There are bright spots in cash: liquidity seems comfortable enough, and the working capital outlook better from inventory reduction and extended payment terms. Rebasing our expectations, we lower profits but expect better cash from WC movements We maintain our FY23 adj....
Our 10-year DCF with zero terminal value is still ahead of the share price, despite the recent bounce. boohoo is making strong progress on efficiency gains ahead of any revenue recovery, medium-term prospects remain significant.
P3’23 (Sep-Dec) net revenue declined -13% CCY basis, worsening from -10% in 2Q’23. The slowdown was driven by weakening UK demand. Gross margin declined -220bps to 49.7% driven by higher markdown activity to clear its elevated inventory position. Guidance for FY’23E has been lowered slightly to -12% revenue (from -10-11%) and a 3.5% EBITDA margin (from 3-5%). We believe the margin pressures on the company are structural given the need to compete with Shein, higher return rates, near shoring of sourcing. The shares appear cheap at 0.35x 12m forward EV/sales (vs. 2.5x pre-pandemic) and 8x EV/EBITDA, but with our forecast of negative FCF till FY’25E, debt on the balance sheet, diminished prospects in its key markets and lack of visibility on the scalability of its newer brands, we believe there is better value elsewhere for now.
P3, 4 months ending 31st December 2022 P3 Group revenue was -13% YoY (cc) (H1: -9% YoY(cc)), below consensus expectations at -10% YoY. Across geographies, P3 constant currency sales growth was: UK at -11% YoY (P2: -8% YoY); USA at -17% YoY (P2: -29% YoY); Europe at -11% YoY (P2:+5% YoY); ROW at -15% YoY (P2: +15% YoY). Group gross margins were 49.7% versus expectations of 51.2%, but are expected to improve in P4 with improved markdown activity – inventory levels have been reduced by 27% YoY. The Group had £300 million of gross cash at the end of December, meaning net debt is expected to be less than 1x adj. EBITDA at the end of the financial year. Outlook adj. EBITDA is expected to be in line with market expectations (FY23E consensus: £62m), with management expecting revenue to fall 12% for the year, with EBITDA margins of 3.5%. This implies H2 sales decline by 14% YoY – thus little improvement in P4 - and that EBITDA margins are below 3.5% in H2, having been 4% in H1. View Our forecasts assume a subdued recovery in sales growth going forward - with broadly flat YoY growth in FY24E and +3% YoY in FY25E, with EBITDA margins reaching just 5% by FY25E, versus historically being as high as 10%. Going forward, comparatives start to ease and £60m of elevated freight costs in FY22 should also start to unwind. However, the deterioration in the core UK business and across all markets is concerning and raises questions as to whether recovery is even on the table at this juncture, as well as prompting questions about the structural health of the business
• Trading update: Group revenue of £637.7m is 10.7% lower YOY (P3 FY22: £714.5m), in line with previous guidance and Zeus forecasts. Performance was softer across all markets and almost all Group brands and reflects the normalisation of the channel shift online over the last twelve months. UK revenue of £400.8m is down 11.1% YOY (P3 FY22: £451.0m) suggesting a softening in demand versus H1 FY23: (4.4)%, but against a strong prior year comp (P3 FY22 UK revenue growth: 26.4%) as the outbreak of Omicron drove consumers online. International revenue growth continues to be impacted by extended delivery times. USA revenue of £128.9m is 11.6% lower YOY (P3 FY22: £145.8m) and 17% lower at CER. Despite this fall, P3 performance suggests a moderation in sales decline versus H1 FY23: (29.2)%. ROE revenue of £73.5m is (8.0)% YOY (P3 FY22: £79.9m) and 11% lower at CER, whilst ROW revenue of £34.5m is (8.7)% YOY (P3 FY22: £37.8m) or 9% lower at CER. P3 FY23 gross margin of 49.7% is 220bps lower YOY (P3 FY22: 51.9%), reflecting increased cost of sales (freight, raw materials etc) broadly in line with both management expectations and Zeus’ H2 forecast. Overhead costs continue to be tightly managed with the UK distribution network rationalised and headcount reduced as the Group right sizes its cost base for current trading conditions.
In the second Just a Minute of 2023, we discuss: Learnings from the early Christmas updates: John and Jon Previews for boohoo, Dunelm# and WH Smith John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com, Ruben.Pathmanathan@peelhunt.com #Corporate client of Peel Hunt To watch this week’s episode of Just a Minute, please click on the image below
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Following Next’s trading update last week, we expect online apparel to have performed somewhat better than feared but still behind multichannel business models. While we think boohoo played Black Friday relatively well, higher return rates will likely constitute a drag on profitability. Our outlook for 2023 is cautious, particularly for value offers, but we continue to see an opportunity in boohoo, which we prefer over ASOS (Sell). However, with shares trading on an FY24F PER of 13x, we see the valuation as full. HOLD
While Boohoo are confident of achieving pre-pandemic growth and margin rates, we are less convinced. The group has not gained much share of the UK online clothing market in the last three years and has clearly lost massive ground to Shein in the US and to online marketplaces in Rest of Europe. Given the ground already lost to Shein and plans to open further local distribution centres in the US, we think boohoo will struggle to reinvigorate growth even after the opening of their new DC (or at the least the growth could be rather costly). On profitability, while headwinds are turning into tailwinds these will need to be reinvested into pricing, marketing, and improving the consumer delivery and returns offer. We forecast negative FCF till FY’25E hence why the shares look optically cheap at only 0.4x EV/sales and 9x EV/EBITDA. With no FCF or dividend support, diminished prospects in its markets and lack of visibility on the scalability of its newer brands, we believe there is better value elsewhere for now.
Boohoo is facing several headwinds; its consumers are under pressure, Shein is a fierce competitor which will only get worse, cost head winds are real and the need to invest in marketing and service may hold back profit delivery for longer than expected. A net debt position will be a limiting factor in making long-term investment, thereby holding the return to pre-pandemic growth rates and margins for quite some time, if ever. We have clearly been wrong on our recommendation and change this to a SELL (from HOLD) today reflecting the multiple challenges the group faces.
Similarly to other online peers, Boohoo has been impacted by a combination of temporary and permanent factors which have undermined its unit economics. Ascertaining the difference is important, the brand has no right to return to making money if its previously thin margin structure has been permane
The shares are trading on a downgraded FY24E EV/EBITDA of 7.2x, with the business looking well placed to weather a challenging peak trading period. 8-page note
This will prove to be one of the first of many profit warnings in the UK retail space as evidence of the squeeze on discretionary spending becomes more apparent. The arrival of the anticipated downturn will in our view test both management ability and investors’ view of which models to support – when the tide goes out. Boohoo is making the adjustment from growth to defence more sensibly than others in the space, benefiting from being all own brand and having a relatively short supply chain. But that is not why we are still buyers although we appreciate the effort management is making to protect the downside. Ultimately we still feel that boohoo is very scalable because of the breadth of its brands and the fact that its gross margin structure allows it to deploy proportionately more marketing than its clothing market rivals. One of the costs we expect to normalise is digital performance marketing where current inflation is unsustainable with falling ROAS in our view. One other qualitative point that came across strongly at these results was that management appears to be much closer to the trading action than at the other clothing retailers we follow. There are debates still to be resolved over areas like how the extension of distribution capacity outside the UK will turn out in practice. But even after relatively material downward adjustment of forecasts we are retaining our Buy recommendation and target price.
Q2 miss and 2H guided down but a lot is in the price 2Q sales came in 15% below consensus, with the UK swinging back into decline and H1 adj EBITDA was c.GBP2-4m below expectations. In addition, taking a more conservative view of demand for the remainder of FY Feb-23, management lowered its 2H growth and margin expectations. Self-help initiatives, particularly related to sourcing and warehousing remain on track but key unlocks like the US warehouse are still 9 months away. Meanwhile, high shipping costs and slow delivery times are only showing slow improvement, whilst customers are experiencing rising cost-of-living pressures. We cut adj EBITDA c.20-30% but, with shares down heavily in recent months, stay Neutral. UK seeing sharp slowdown whilst most international markets remain weak... Having seen a return to UK growth in May, Boohoo saw a disappointing slowdown with domestic sales falling 8% year-on-year and a weak exit rate cautioned into September. The Rest of World segment saw an encouraging recovery, up 15% yoy, underpinned by the ramp up of wholesale and a rebound in demand in Australia where consumers are responding positively to a return to 4-day delivery lead times. By contrast US sales deteriorated further, down 30% yoy (albeit still +37% vs. 2Q20) with transatlantic delivery times still stuck at 8-10 days detracting from the proposition. We also think competition from the likes of Shein also remains a key issue though, as highlighted in our mindshare and app analysis published earlier this month. ...with slower sales weighing on margins despite an improved inventory position Boohoo now expects full year sales to decline c.10% with resulting deleverage of costs leading to a 3-5% adj EBITDA margin vs. 6.3% last year and 10.2% pre-pandemic. This implies a EBITDA range of GBP54-89m. We cut our own adj EBITDA forecast to GBP61m, also lowering outer year expectations given likelihood of protracted soft demand and inflationary cost...
Interims, 6 months ending 31st August 2022 Reporting adj. EBITDA of £35.5m (-58% YoY), broadly in line with consensus expectations (consensus: £37m). Group H1 revenue was £882.4m (-10% YoY) - which was softer than consensus expectations of £949m. Therefore, in constant currency, P2 Group sales growth was -10% YoY (P1: -8% YoY), and below implied consensus expectations of c. -5.5% YoY owing to elevated returns rates and with the proposition continuing to be impacted by extended delivery times, in the International businesses. Across geographies, P2 constant currency sales growth in the UK is -8% YoY (P1: -1% YoY); USA at -31% YoY (P1: -28% YoY); Europe at +5% YoY (P1:-7% YoY). There was better trading in ROW with sales +15% YoY (P1: +15% YoY) given easing comparatives. Group gross margins were -210bps owing to inbound freight inflation, but the discrete P2 result is disappointing given easing comparatives and prior signs of improvement towards the end of P1 (when gross margins were -220bps). Outlook & view Management now expects H1’s rate of revenue growth (-10% YoY) to persist throughout the remainder of the year. Previously management had expected full year “LSD” revenue growth in FY23, with flat net sales in H1 (and by implication positive sales growth to return in H2). For reference, pre-statement consensus full year FY23 sales growth is +1% YoY. Elsewhere, EBITDA margins are now expected to be between 3% and 5% (previously 4% and 7%; (consensus: 4.7%)). Taking all new guidance together implies EBITDA of between £55m to £90m, versus consensus at £94m. Taking the mid-point of new margin guidance implies that H2 EBITDA will be broadly in line with H1 and H2 EBITDA levels last year (H2 FY22 EBITDA: £40m). With net cash at £10.4m, management highlights that it has significant liquidity headroom for selective investment programme, with gross cash of £315m at period end. Going forward, while freight costs are beginning to ease, the market is likely to have concerns about FX, and now working capital and markdown (given softening demand), as well as the strength of the UK proposition. While the historic valuation may appear undemanding, longer-term growth prospects may start to be queried.
H122 results reflect deterioration in UK consumer alongside ongoing pressures of higher return rates and extended delivery to international markets. Despite challenging market backdrop, BOO is well positioned with significant liquidity headroom and a near term focus on driving operational efficiency.
1H preview, boohoo won’t be left crying At the end of September, we expect boohoo to announce sales and profit in line with its guidance in May. The focus will be on the future and not the past. On this front, we believe the group’s £325m banking facility and asset-backed balance sheet provide sufficient cover for a tough year ahead and the key distribution projects in train. When the smoke clears next year, boohoo’s differentiated brand portfolio offers significant growth prospects against the wreckage of the High Street for 6x EV/EBITDA. We maintain our Add rating but reduce our TP from 140p to 100p. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com, Ruben.Pathmanathan@peelhunt.com
ASC^; BOO^ - Two very different trading statements ASOS^ (ASC, Sell at 960p) boohoo^ (BOO, Hold at 61p)
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We thought that this admittedly short-term 1Q update was OK. While issues remain with delivery lead times for non-UK business that somewhat undermine the fast fashion appeal, more importantly the back-end of the business appears to be adjusting towards a more realistic position than ASOS. The near doubling of inventory days at the year-end is being reined in and the returns-related opex mitigated. We just feel that Boohoo is more commercial than ASOS, although the alternative view is that ASOS is encountering the same issues six months after Boohoo. Both companies need to demonstrate stabilisation of cashflows after big post-COVID outflows, albeit Boohoo’s is in our view more related to investment. Investment-wise we continue to believe that both have stronger long-term prospects than traditional mixed-channel retailers but both will remain at subdued valuation levels until the wider market starts to look through the current monetary tightening cycle. Our Buy rating and target price are unchanged following this update.
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1Q in line, forecasts unchanged There is a fundamental point of difference between the boohoo & ASOS messaging this morning, with boohoo not seeing any change in consumer behaviour; returns rates here are entirely a function of product mix. Group revenues fell by 8% YoY against tough comparatives, with higher returns rates impacting strong gross demand, an effect we expect to annualise out from 2Q. Sales are on a rising trend, with May’s exit rate much stronger, setting up positive growth expectations for 2Q. Today’s share price fall feels more like sector spill over. Reiterate Add. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
P1 – 3 months ending 31st May 2022 P1 Group sales growth was -8% (P4 FY22: +9%), in line with guidance for negative growth in Q1 and broadly in line with consensus at -6% YoY. Gross demand growth remained positive against tough comparatives, +9% with net sales continuing to be impacted by the ongoing normalisation of returns due to product mix change. Group gross margins were -220bps (versus -40bps in H1 FY22), with higher inbound freight costs continuing to impact. By geography, sales growth performances were UK: -1% (P4 FY22: +15%), with improving performance throughout the period, such that net sales returned to positive growth in May. USA: -28% (P4 FY22: -14%) against tough comparatives. However, with comparatives easing significantly in the period, ROE was -9% (P4 FY22: +14%), and ROW was +15% (P4 FY22: +36%) with wholesale driving growth. Management continues to make progress on new recent strategic initiatives, namely tightening stock levels and sourcing freight from near-shore markets while controlling costs. Outlook unchanged Management continues to expect pandemic-related factors to negatively impact costs within its supply chain and international competitive proposition. They therefore continue to expect low-single digit revenue growth in FY23, with flat net sales in H1 as relatively higher returns rates impact net sales (consensus FY23 sales growth: +3.6% YoY). Adj. EBITDA margin guidance also remains unchanged at 4% to 7% (consensus: 4.8%) which implies EBITDA of £82m to £143m (consensus: £99m). View We continue to assume a more conservative acceleration in sales growth going forward with 8% in FY24E, rising to 14% by FY25E, versus management’s medium-term guidance to return sales growth back to 25% p.a.. We are not convinced that management will be able to recover sales retention in the International businesses easily, and the UK business is at risk of reaching maturity. However, elevated FY22 freight costs – worth £65m – may start to normalise, providing a helpful tailwind going forward and inventory levels also appear to be reducing. Valuation remains undemanding on c.11x FY25E PE, if recovery can occur. HOLD.
• Q1 financial highlights: Group 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.
1Q’23 net revenue declined -8% yoy, below consensus and our expectations. The decline was driven by a first ever sales decline in the UK (-1%), where we believe the company is losing share after two years of significant gains, and a major -28% decline in the US which is still impacted by the weak delivery offer along with Shein taking further ground. Gross margin declined -220bps yoy to 52.8% against a tough comp but were up 240bps vs. 2H’22. Guidance for FY’23E was set conservatively and is maintained, but we believe investment into both gross margin to clear stock and stimulate demand, and in marketing and distribution to attract customers would be needed to achieve growth this FY. We expect margins to be in the lower half of the 4-7% range. The shares appear cheap at 0.4x 12m forward EV/sales (vs. 2.5x pre-pandemic) and 7x EV/EBITDA, but near-term risks are high and positive catalysts are c. 12 months away. We remain HOLD.
Boohoo reports 1Q’23 trading (Mar-May) on 16th June. The company has guided for a sales decline in 1Q’23, and we expect boohoo to report a low to mid-single digit sales decline, driven by a first ever sales decline in the UK, and continued weakness in the US. The clothing market in UK remains relatively resilient, both online and offline, but we believe boohoo is giving up some significant share gains it had made in the last two years, while US is still impacted by the weak delivery offer along with Shein taking further ground. Demand in RoE appears solid and there will be further support from recent wholesale distribution wins. Guidance for FY’23E is set conservatively and will likely be maintained, but we believe investment into both gross margin to clear excess stock (which is up dramatically) and in marketing and distribution to attract customers would be needed to achieve growth this FY. We expect margins to be in the lower half of the 4-7% range. The shares appear cheap at 0.4x 12m forward EV/sales (vs. 2.5x pre-pandemic) and 7x EV/EBITDA, but near-term risks are high and positive catalysts are c. 12 months away. We remain HOLD.
We update forecasts for recent FY results. Our revenue forecasts lie modestly below management guidance (-1% vs. mgmt. LSD +ve) and at the lower end of the EBITDA range (5% vs. 4-7%). However, the gap in expectations is lower than it has been, with guidance reflecting something closer to the curren
We are reducing sales and profit forecasts in line with the company’s guidance by nearly 20% at underlying EBITDA level to £118m. More in-depth analysis shows that boohoo has depended on the acquisitions it has made since calendar 2019 for all of its sales growth in FY2/22 with the core brands flat yoy (slightly up in the UK +5%E). The flip side is the 93% increase in inventory which speaks to the capital deployment required for the brand expansion (as well as some Chinese New Year impacts). Boohoo is in a structural phase of its development that has been somewhat masked by the volatility around COVID. There is clearly risk associated with this. Given the uncertainties currently being experienced boohoo appears less confident that it can grow its non-UK business in the near-term but should be able to again see some growth from its UK immature brands. But the valuation has moved so that this is recognised to an extent. Our forecasts for FY2/24 and 2/25 recognise a more gradual recovery of sales from the current slowdown than we had previously expected and improved EBITDA margins but again not as quickly as previously hoped for. We remain buyers with a reduced Target Price of 120p reflecting near-year forecast reductions.
We downgrade our recommendation on boohoo to Hold from Buy on a valuation grounds but also note the lack of catalysts and several challenges ahead. The recent high level of investment, while needed, has put the business in a less than desirable position. Boohoo has gained significant market share over the pandemic but will need to trade further profitability merely to retain its position. With boohoo shares almost back to the IPO price, could a takeover emerge? HOLD.
Facing into another year of ''temporary'' supply chain headwinds FY Feb-22 adj EBITDA fell 28% yoy, albeit was in line with pre-close guidance, as supply chain inflation weighed on margins. Initial guidance for FY23 assumes no reprieve from these elevated costs whilst slow international outbound air freight also significantly continues to dampen overseas demand. We make little change to our below-consensus adj EBITDA forecast, albeit cut EPS on higher interest expense and tax rate. The ecommerce market faces other challenges including post-pandemic reopening, a tough consumer macro backdrop and Chinese rivals. Remaining selective in the space, though, we retain our Outperform rating on Boohoo given turnaround potential. Supply chain costs continue to drag margins... Management estimates GBP60m of extra in- and outbound costs from higher freight fees than seen pre-pandemic implying the 6.3% adj EBITDA margin reported was dragged c.300bps. A further 170bps is attributable to the setup and re-launch of recently acquired brands including multi-brand site Debenhams. We estimate MandA in total added c.9ppt to growth in FY22, suggesting good momentum established from these brands which typically have to be relaunched from scratch. ...but the biggest problem remains International shipping speeds However, Boohoo Group''s biggest problem remains the substantial delays in getting orders to International customers from its three UK warehouses: taking 8-10 days to reach the US, for example. The company still plans to open a US warehouse, and this will allow 1-3 day delivery once operational. However, the timetable for this remains mid-2023 (FY24). Wholesale development remains one small mitigant, with a further two accounts in India and UK hinted at coming soon to add to Alshaya (MENA), About You (Europe) and Very (UK), but more generally we continue to think the group''s overall growth will remain constrained until more international air freight capacity...
Temporary not structural, but it’s a year of consolidation boohoo’s final results were in line with downgraded expectations, while guidance for FY23 has been set below market forecasts, in keeping with our recent forecast cuts. Stepping back, we think the group’s brand portfolio, particularly the latest batch of Debenhams and Arcadia acquisitions, has huge longer-term potential. International distribution capability remains an issue, however, and is unlikely to be solved before FY23. With everything 2H weighted and FCF under pressure this year, the shares are unlikely to show much enthusiasm for recovery before the US situation is resolved. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
FY’22 numbers came bang in line but with adj. EBITDA margins down -370bps to 6.3%; sets an uneasy direction of travel for FY’23. Recent trading is very tough with deep discounting and promotional activity needed to hold onto market share. Hence it comes as no surprise guidance for FY23 is now for low-single digit growth, even a decline in Q1’23. Margins are expected to fall further (we forecast c.4.5% EBITDA) but guidance is very wide highlighting just how uncertain mgmt are. Net cash has fallen to c.£1m down from £276m cash LY, and with capex ratcheting up to c.£120m this year; the group has signed a £325m RCF. With margins declining, sales hard to come by and competition as rife as we have ever seen it; layering on debt and doing expensive capex projects (as needed as they are) seems unfortunate timing. Move to HOLD on valuation grounds but note the increased risks.
Issuer Sponsored WYNNSTAY GROUP+ (WYN, House Stock, 604p) – FY22F to exceed current market expectations; c.18% upgrade. MPAC GROUP+ (MPAC, House Stock, 478p) – AGM Trading Update, Strong Order Flow Continues FTSE 100 FLUTTER^ (FLTR, Hold at 8,100p) – Q1 statement – Flutter has issued an update for the three months period FTSE 250 ONESAVINGS BANK^ (OSB, Buy at 559p) – Rate rises drive further forecast upgrades JD WETHERSPOON^ (JDW, Hold at 745p) – Q3 update AIM BOOHOO GROUP^ (BOO, BUY at 80p) – Prelim results – beat to forecasts; c.20% FY23 guidance downgrade
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Full year FY22 results, 12 months ending 28th February 2022 FY22 adj. EBITDA is in line with recent guidance at £125.1m, -28% YoY and versus consensus at £117m, which implies EBITDA margins fell to 3.9% in H2 (H1: FY22: 8.7%, H2 FY21: 9%), with profitability impacted by higher return rates and ongoing pandemic-related freight costs. Full year gross margins were down 170bps (H1: -40bps). Full year Group sales had been pre-announced and were up +14% YoY / (+61% 2YoY) / (P1: +32% YoY, P2: +9% YoY, P3: +10% YoY, P4: +7% YoY). Robust UK sales helped offset weaker performances in the International businesses albeit improving towards the latter part of the year against softer comparatives. By geography YoY UK sales were: +27% (H1: +32%, P3: +26%, P4: +15%), ROE sales were: -10% (H1: -16%, P3: -11%, P4: +14% ), USA sales were: +4% (H1: +24%, P3: -13%, P4: -14% ), ROW sales were: -10% (H1: -15%, P3: -17%, P4: +36% ). Net cash is £1.3m (LY: £276m). Valuation: The shares trade on 15.6x FY23E PE and 10.1x FY24E. Outlook & view Management expects pandemic-related factors to continue to negatively impact costs within its supply chain and international competitive proposition and thus now expects “LSD” revenue growth in FY23, with flat net sales in H1 and down in Q1 as relatively higher returns rates impact net sales (consensus FY23 sales growth is: +9.4% YoY). Adj. EBITDA margins are now expected to be between 4% and 7% (consensus: 6.4%), which implies EBITDA of between c. £82m-£143m (consensus: £138m). Medium-term guidance remains for adj. EBITDA margins to return to 10%. Management intends to now focus on sourcing and freight costs, specifically targeting increased sourcing from near-shore markets. They will also look to improve stock management - operating with lower levels of inventory through tighter stock management and increased levels of open to buy. We note pre-statement consensus sales assumed growth returns to c.+18% in outer years with EBITDA margins of c.8%. In the meantime, elevated FY22 freight costs - worth £65m - normalising may provide a helpful tailwind going forward. See recent link to note here . Valuation: There is high forecast risk to outer year growth and margin assumptions, much of which is now reflected in the pre-statement valuation on 10.1x FY24PE.
• Financial performance: Group 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.
2 - 6 May 2022
BOO DLG FLTR JSG OCDO TEG STAN BBOX BDEV COST DLN DOM HTWS HSX IMI FSJ JDW MRO MELR MONY MGNS NXT RCH TRN VMUK BEZ IHG EMG RMV SPT TRUEB MGAM OSB 483
A year of consolidation; FY23 forecast cuts boohoo’s issues are logistical rather than creative. As we’ve seen from the UK, where sales have outperformed expectations, the group’s brand portfolio is performing well. However, lead times into international markets take far too long to be competitive. With no quick solution and no let-up on freight and wider inflationary pressures, we see FY23 guidance being set well below current market expectations. We downgrade our FY23 EBITDA from £127m to £101m to reflect this. FY23 becomes a year of investment and consolidation, before profit momentum and margins bounce back in FY24. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com 5-page note
P4 trading was no worse than feared… with Group P4 sales at +7% (P3: +10% YoY, P2: +9%, P1: +32%), leading to a full year sales growth outcome of +14% – in line with recently downgraded guidance at P3. Pleasingly, the “strong” UK sales performance points to the boohoo brands still resonating with their core customer. However, P4 international sales remain soft, albeit with growth coming from the ROW region for the first time this year. With full year EBITDA now guided to £125m this year, this implies EBITDA margins fell to 3.9% in H2 (H1: FY22: 8.7%, H2 FY21: 9%) with profitability impacted by higher return rates and ongoing pandemic-related freight costs. …yet we do still have concerns: until localised warehousing is installed in the US and ROE regions, sales growth is likely to remain subdued with lead times remaining uncompetitive versus peers. Worse still, with localised warehousing unlikely to materialise until 2023, boohoo risks losing International customers for good – especially in light of growing competition from up and coming brands like Shein. We are also increasingly concerned that elevated marketing costs are simply failing to ignite demand and that return on marketing spend has fallen sharply this year. In the meantime, we are not convinced boohoo’s acquisition of Debenhams marketplace is able to compete with established platforms such as ASOS and Next. If this is the case, growth is becoming overly reliant on the maturing UK business as well as a US business that is not without problems. Forecasts: We publish new forecasts that are closer in line with consensus, which assume half the elevated in/outbound freight costs of £65m this year fall back by FY24E. There are risks here given the recent sharp rise in energy and commodity prices. While we assume top line growth re-accelerates to +18% in FY24E, this may prove optimistic given recent soft trading and could require elevated marketing investment where returns have been falling of late.
Clearly consensus has been slipping over recent weeks and while FY1/22 is now expected to come in at £125m Adjusted EBITDA, in line with mid-December 2021 guidance, there are more reasons to be cautious on forecasts for the current financial year with a worse inflation outlook and continuing returns annualisation effects. This said, we are not too concerned about FY1/23 and we are more interested in whether the view of longer-term prospects has changed fundamentally.
Russia is c.18% of Group EBIT. Roughly 80% of sales there are Coke brands, with the remainder being Juice and Water brands. CCH operates 10 plants and employs 6,500 people in the market. We assume there will be a restructuring at some point, to limit operating deleverage as the business shrinks to its “new normal” level. In our forecasts we assume 1.5 months of 10% sales growth prior to the Ukraine invasion, followed by a 50% decrease in Water & Juice sales and a 100% decline in Coke brands sales. We assume no recovery of this market in our model. CCH has previously reported non-current assets in Russia of €331m (6% of the Group). There is no RUB denominated debt. Ukraine is c.2% of group EBIT. We also assume 1.5 months of 10% sales growth, but this is followed by an 80% decline in the business thereafter, with stabilisation at that lower level. Again, we assume no recovery in this market in our model. With the declines in Russia and Ukraine, Egypt and Nigeria will become much more significant to the Emerging division and to the Group as a whole (moving from 14% of sales to close to 20% of sales, and to c.30% of volumes). This means the Group can still deliver solid mid to high single digit organic sales growth even without the benefit of Russia’s growth (which had been strong in recent years). FY23E-FY25E organic sales growth averages 7% in our model. For CCH Group we forecast FY22E organic volumes -10%, price/mix +8.4% and an underlying EBIT decline of 13%. The Egypt acquisition helps to cushion the decline by adding 4% to the FY22E underlying EBIT (excluding the Cyprus property sale from the 2021 base) and 7% to FY22E sales. Our new slightly lowered TP implies FY22E PE 21.3x & FY23E PE 20x.
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Boohoo has been somewhat more subdued than usual with this update in our view. This clearly owes much to the prevailing uncertainty and the 4Q delivery on sales and adjusted EBITDA are both in line with the guidance at 3Q. FY1/23 starts with heightened uncertainty and forecasts are probably still reliant on continuing UK performance. This said, longer-term growth prospects seem unaffected (albeit we note the competition dynamic that has developed in online garment retailing eg. Shein) and the need for country-specific distribution infrastructure is already acknowledged. Share performance will be affected by broader online valuation considerations in the near term. But we remain buyers on the longer-term fundamentals.
P4: 3 months ending 28th February 2022 Group P4 sales are +7% (P3: +10% YoY, P2: +9%, P1: +32%), leading to a full year sales growth outcome of +14% – in line with recent downgraded guidance at P3 for full year sales growth of +12% to +14% (INVe FY22E: +12%). Specific geographic performances have not been disclosed, but the UK performance is described as “strong” in line with P3 trading (P3: +32% YoY, P2: +19%, P1: +50%). International performance continues to be impacted by longer customer delivery times as a result of pandemic-related supply chain pressures but, against soft comparatives, P4 trading in ROW returned to growth having been negative for most of FY22 (P3: -21% YoY, P2: -16%, P1: -15%). As a reminder, ROE trading at P3 was -12% (P2: -17%, P1: -14%) and USA was -14% (P2: +8%, P1: +43%). Outlook, guidance & view Full year adj. EBITDA is expected to be £125m, towards the lower end of P3 guidance (£117m to £139m) and implying H2 EBITDA margins are c. 4% (-500bps YoY), with profitability impacted by higher return rates and ongoing pandemic-related inbound freight cost inflation. Going forward, consensus assumes margins return to 8% within two years, with 15% p.a. 2 year CAGR sales growth (FY22-24). We have had concerns about boohoo for some time now – see our June note here and December note: Not so fast (fashion) - 16-12-2022). We continue to believe that, at best, recovery will be a slow and protracted affair; at worst, there could be no recovery at all if boohoo is losing customers to new up and coming peers. We remain unenthused by the acquisition of Debenhams marketplace, with growth overly reliant on a UK business that could be approaching maturity. Whilst the valuation is by no means demanding on 14.5x FY23E PE, forecast risk still exists here, in our view – although we acknowledge the shares may experience some relief this morning.
Boohoo reported full year FY’22 sales growth of 14% and adjusted EBITDA of £125m (a 6.3% margin), in line with updated guidance. UK continues to deliver “strong trading performance”, but the US and Europe are still highly impacted by the weakened customer delivery propositions. RoW saw a return to growth due to first time wholesale sales to the group’s wholesale partner Alshaya in the Middle East. The shares have had a tough few months, now down almost 80% from pre-pandemic peaks, and today’s in-line performance may be a source of relief. However, trading over the next 12 months remains highly dependent on external factors, in particular air freight supply and costs, normalizing. While current growth and margin dynamics do not support our BUY call, we think the shares look oversold and hence remain a BUY. To justify the current share price, we will have to model that EBITDA margin remains in the 6-8% range permanently with sales growth at a 12% CAGR over next 5 years vs. the company targets of 9.5-10% EBITDA margin and 20-25% growth in the medium term
Q4 trading: 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.
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We think trading will remain tough near-term, but we recommend revisiting the shares in 2nd half of 2022 when re-opened economies will generate demand tailwinds. The supply chain disruption highlighted flaws in boohoo’s distribution model and underinvestment in infrastructure. We believe boohoo will have to play catch up on capex over the next two-three years. Margins are unlikely to recover to historic highs as we think supply chain costs have permanently rebased at a higher level after the pandemic, and boohoo will need to reinvest in marketing to recapture lost audience internationally. This implies FCF will remain muted for the next two to three years. We have clearly been wrong in recommending a BUY over the last 6-9 months, but we think the share now look oversold. Trading at only 0.6x FY’23E EV/sales and 8x EV/EBITDA, we think the shares offer good long-term value. We reiterate BUY.
Following the not completely unexpected profit warning in December, we cut our fair value to 270p from 345p but maintain our Buy stance. While it is difficult to predict how long the supply chain headwinds will last – most likely through the first half of FY23F – we consider them transient and think the current valuation prices them in. With consensus forecasting a progressive recovery in profitability through to FY24F, we believe there is room for upside potential and that investors should take advantage. BUY.
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Boohoo’s recent profit warning was not just a result of the global supply chain logjam but also over-optimism baked into the guidance for 2H’22E. We believe the inflated supply chain costs and weakened delivery proposition will persist for the next 12-18 months, and we therefore cut our FY’22-24E earnings estimates by >40%. Our view is that there will be an industry-wide permanent rebasing of supply chain costs at a higher level after the pandemic. We also believe boohoo will need to invest behind prices and marketing to recover lost ground in US and RoE. We therefore estimate EBITDA margin remaining below the 10% target until FY’27E. The increased returns rate brings in an added element of concern around product quality, but we continue to believe in boohoo’s long-term potential, and see a path for recovery to the medium-term growth targets as we think the rapid growth of Shein in the US may be in boohoo’s favour in the long-run. We are excited by the developments at Debenhams where the opportunity is substantial. Trading at only 0.6x FY’23E EV/sales and 7x EV/EBITDA, we think the shares offer good long-term value. We reiterate BUY with a lowered 200p TP (from 360p).
boohoo Group : Still got the potential – but all numbers lower Analyst - Tony Shiret +44 (0)207 886 2959 Boohoo is suffering from COVID-withdrawal symptoms which have come on remarkably quickly. Its sales growth expectation for FY2/22 has moved from +2025% as at 30th September to +10-12% and EBITDA margin on an underlying basis from 9-9.5% to 6-7%. The company has additionally found that COVID related costs will impact the full year by c£75m. EBITDA expectation has thereby dropped at the midpoint by 35% to £117-139m over a 7-week period. We still like boohoo for the scalability embedded in its newly acquired brands and international operations. But this is a wake-up call that getting big is not a straightforward proposition. In the near-term boohoo will be even more reliant on its UK business where premium growth rates look stretched absent the acquired brands. The need for fit-for-purpose international logistics has also been made here. On our revised forecasts we have re-evaluated target price and reduced from 450p to 140p at which level it would be valued at 22x 2/24 PER, 10.3x EV/EBITDA, c70% of sales. Our underlying EBITDA margin forecast in FY2/24 is 8.4% against the medium-term target of 10%. Please see our full report published this morning or contact your Panmure Gordon representative for further details. Read More... Keywords Studios : Demand for content continues Analyst - Alasdair Young +44 (0)20 7886 2772 Driven by a buoyant market backdrop, Keywords is yet again trading ahead of expectations, and has increased guidance for both FY21/22E. We increase our FY21E EPS estimate by 5%, with smaller increases in the outyears. Keywords remains a top pick in the video games space, and we see a high probability of further upgrades at the next trading update at the end of January. BUY. Read More...
boohoo group Plc Keywords Studios plc
Boohoo is suffering from COVID-withdrawal symptoms which have come on remarkably quickly. Its sales growth expectation for FY2/22 has moved from +2025% as at 30th September to +10-12% and EBITDA margin on an underlying basis from 9-9.5% to 6-7%. The company has additionally found that COVID related costs will impact the full year by c£75m. EBITDA expectation has thereby dropped at the midpoint by 35% to £117-139m over a 7-week period. We still like boohoo for the scalability embedded in its newly acquired brands and international operations. But this is a wake-up call that getting big is not a straightforward proposition. In the near-term boohoo will be even more reliant on its UK business where premium growth rates look stretched absent the acquired brands. The need for fit-for-purpose international logistics has also been made here. On our revised forecasts we have re-evaluated target price and reduced from 450p to 140p at which level it would be valued at 22x 2/24 PER, 10.3x EV/EBITDA, c70% of sales. Our underlying EBITDA margin forecast in FY2/24 is 8.4% against the medium-term target of 10%.
Boohoo is, and will continue to, face into a difficult cocktail of headwinds. Short-term the model is impaired, and we aren’t sure we’re at the end of the downgrade cycle. Medium-term the recovery path is likely to be bumpy and there are some execution hurdles that concern. But long-term it isn’t b
Are Q3 issues just “transitory”? Whilst it is tempting to believe that boohoo’s issues are only transitory, we worry that until localised warehousing is installed in both the US and ROE regions, sales growth is likely to remain subdued with lead times remaining uncompetitive versus peers. Worse still, given localised warehousing is unlikely to materialise until 2023, boohoo risks losing International customers for good – especially in light of growing competition from up and coming brands like Shein, in our view. We fear that this is already the case in ROW territories. Not just a margin issue: Bulls may highlight that if “transitory” elevated freight costs (inbound and outbound) fall away, the recovery in earnings would be substantial. However, this is debatable, in our view. Are International shipping costs really likely to fall away any time soon? And has the switch back to dresses and “occasion wear” fundamentally impacted return rates for good? We are also increasingly worried that elevated marketing costs are simply failing to ignite demand. We estimate customer acquisition costs have nearly doubled versus two years ago. Furthermore, we suspect that growth in the UK is being funded by elevated marketing spend, implying that growing the newly acquired brands or maintaining growth for the established brand is costly. Can boohoo become a marketplace aggregator? We are not convinced boohoo’s acquisition of Debenhams marketplace is able to compete with established platforms such as ASOS and Next, where progress on extending fulfilment and showcasing 3rd party brands has been eye-catching. In which case, growth is becoming overly reliant on the maturing UK business as well as a US business with a proposition not without problems. Valuation: On newly downgraded numbers, valuation is less compelling and we believe sentiment is likely to be driven by earnings momentum on which we have little visibility.
Failure to deliver boohoo’s profit warning today reflects a weakened delivery proposition into international markets that doesn’t compete with local competitors. UK performance was strong (+32%), coming in ahead of forecasts, giving confidence in the brand proposition. Europe, the US and wider international performance saw declining sales into peak, a reflection of an 8-10 day delivery promise that doesn’t help with the question of “what shall I wear on Friday?” Exacerbated by higher freight costs and return rates, guidance points to EBITDA of c.£120m vs c.£200m previously. The service proposition can be fixed, but it will take time. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
3Q trading update & revised guidance Management has lowered FY guidance along with its 3Q trading update to 30 November. This is mainly due to much higher returns rates, disruption to the international proposition and cost inflation. Management believes these impacts relate to the pandemic and are transient in nature as a result. We believe most of these issues are likely to continue into next year. UK performance remains robust with 3Q net sales up 32% YoY, and 78% on a 2 year basis, although returns are up 12.5% percentage points YoY, and 7% higher than pre-pandemic levels, driven by an exceptionally high dress mix. Elsewhere, US net sales are down 14% YoY (up 36% on a 2 year basis). Rest of Europe sales are down 12% YoY and up 15% on a 2 year basis, with ROW down 4% on a 2 year basis. New FY22 guidance is an adjusted EBITDA range £117m to £139m versus INVe £193m New FY22 guidance is for net sales +12% to +14% (previously 20%-25%). Adjusted EBITDA margin of 6%-7% (previously 9% to 9.5%) implies an adjusted EBITDA range of £117m to £139m, versus INVe £193m. Higher inbound freight costs has hit gross margin by 100bps which is a c.£20m profit hit. Extra outbound freight cost inflation has had a £45m impact, with start-up costs for recent brand acquisitions of £10m according to management. Medium term targets have been reiterated. Management continues to invest in the infrastructure, with plans for a US distribution centre and a Group network capable of delivering in excess of £5billion of sales. The medium term margin target of c.10% has also been reiterated. We place our recommendation, forecast and TP under review
Boohoo Group has released a Q3 trading update flagging persistent inbound and outbound freight cost inflation impacting international demand and resulting in a material downgrade to the outlook for the full year.
While volatility will undoubtedly persist until the supply chain issues normalise, we see increased marketing spend, faster delivery times and extension into mid-market brands as key growth drivers for boohoo. ESG is now an opportunity for the fast-fashion retailer, as is the underappreciated transformative Debenhams acquisition, having turned boohoo into a leading player in the UK’s online prestige beauty market. With the shares now down to 2017 average levels, we see this as a perfect entry opportunity into the stock. In this report, we set a fair value of 345p and reinitiate coverage of boohoo with a BUY rating, following our long-standing SELL stance, centred upon effective change to prior poor governance.
Disappointing sales with supply chain costs weighing on margins 2Q saw a very sharp slowdown to just +7% yoy from +32% in Q1 and well below our and consensus'' +28% estimate. Whilst reacceleration has been seen in September this is a nasty surprise even in the light of other online players reporting slowdowns recently. Meanwhile supply chain cost pressures have also been higher than we''d feared and drive a downgrade to full year margin expectations. How temporary these dynamics are, versus persisting into 2022/23 is now the key debate. We cut adj EBITDA 10-14% and our DCF-driven target falls to 335p. However, shares are back near post scandal lows and trading on c.26x CY22 PE. Hence, we retain our Outperform rating. Sharp slowdown across all regions... All regions saw a sharp slowdown from Q1, though UK and USA were most disappointing given these had shown strong momentum until now. Management believes delayed unlocking and lack of demand for clothes for festivals and vacations (alongside re-opening of physical store rivals) are the key reasons. Additionally, its overseas delivery proposition has been badly impacted by low air freight capacity - an issue we explored in Cross-border conundrums, but in hindsight significantly underappreciated. Full year guidance implies 2H growth of 20-30% with management citing strong September acceleration and a more ''normal'' holiday season for social occasions as justification. Our conviction is shaken but we now pencil in 21% 2H growth (including c.6% new brand contribution). ...with margins hit by higher inbound and outbound freight costs Despite obvious significant inflation in logistics costs, companies like Inditex and NEXT have recently reassured on their ability to cope. Boohoo by contrast today announced inbound and outbound costs worsening and weighing on full year adj, margins. Additionally, logistics-related exceptional costs and capex are also higher, pressuring cashflow. In part the latter is...
We had anticipated a margin miss and were conscious growth was becoming harder to come by, but the shape of interim results concerns. Much of this is transitory, demand is recovering unevenly and disruption makes it a bad time to be an international retailer. But the collateral damage from this per
Expanding markets: Recent momentum suggests COP26 can be a catalyst for further climate co-operation. Adoption of low-carbon technologies should continue to accelerate given existing policy support. We see hydrogen playing a central role – initially in decarbonising hard-to-abate industries, and increasingly in further applications as the hydrogen economy builds out scale. H2 for the price of one: Ceres is an attractive way to gain exposure to the energy transition, in our view. We summarise the key attractions: (i) proven technology: higher efficiency, lower cost, and more readily-available materials, with dual decarbonisation applicability in fuel cells and electrolysis; (ii) global partnerships, aiding validation and driving commercialisation; (iii) a scalable model with high gross margin revenue growth from partner royalty streams; and (iv) a strong leadership team to capitalise on opportunities. Highlighting the opportunity: We see the value-creation opportunity today as twofold: (1) expanding the core SOFC offering as commercialisation progresses; and 2) developing the nascent SOEC offering to (a) decarbonise existing industrial demand with green hydrogen, and (b) expand use cases as hydrogen eco-systems build toward critical mass, triggering a virtuous cycle. Interims: 1H21 results are in-line and FY expectations are unchanged. SOFC commercialisation efforts continue to progress. The SOEC demonstrator remains on track for 2022 and Weichai JV discussions are progressing well. Estimate changes: We lift our near-term estimates, towards the consensus mid-point. (see table on page 4). Long-term assumptions are unchanged. Valuation: DCF-generated TP of 1720p (unchanged). We reiterate our Buy.
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Interims, BUY into the downgrades Mixed trading over 2Q in the US in particular has left 1H revenue and EBITDA running behind expectations. EBITDA guidance has been trimmed by 50bps, which will signal downgrades across the market (we cut FY22E EBITDA by c.10%). This is not about competitive threats or a drop in engagement (customer KPIs remain strong). Early 2H trading has also picked up, while the outlook for peak and the medium term remains exciting, hence we see any share price weakness today as a buying opportunity. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
Growth in 2Q’22 slowed materially to +9% yoy (and c. 4-5% excluding M&A) from +32% in 1Q and was 15% below consensus expectations, as retail stores reopened and return rates normalized while consumer uncertainty and delivery disruptions remained. 1H’22 adj. EBITDA margins declined -230bps to 8.7%, 40bps below consensus expectations driven by higher return rates and higher distribution costs. The company has lowered FY’22E guidance to 20-25% sales growth (from c. 25% previously) with adjusted EBITDA margin guidance of 9.0% to 9.5% (from 9.5-10.0%), in line with our recently cut estimate of 9.1% margin (read here), as distribution cost is expected to remain elevated in 2H along with shipping cost and wage inflation. The new guidance is well below consensus expectations of 28% sales growth at a c. 9.4% margin in 2022. We expect some of these cost pressures to remain going into FY’23 (Liberum estimate 9.3%), but we remain positive on the long-term growth and margin story for boohoo, which is now available at a very undemanding valuation.
H1 adj. EBITDA is below expectations with weak P2 sales and higher freight costs impacting margins, such that consensus forecasts are likely to fall by 7.5%. However, current trading suggests growth rates have improved since the period end and management are of the view that this recent blip is transitory. We are not so sure, see our recent report – Pausing for breath, 22nd June 2021. Interims 6 months to 31st August 2021 Adj. EBITDA was £85.1m (-5%) and below expectations (consensus: £96.3m), with weakening P2 sales and higher freight and duty costs impacting margins. In constant currency, P2 Group sales growth was disappointing at +10% (P1: +32%), and below implied consensus expectations of c. +30%. Group gross margins were -40bps (P1: -60bps). All geographies have shown a deterioration in performance with P2 constant currency sales growth in the UK at +19% (P1: +50%); USA at +9% (P1: +40%). In Europe, performances continue to be weak at -16% (P1: -12%) with management citing disruption at EU entry ports delaying delivery times and impacting demand. We note gross margins were also down as much as 420bps with the imposition of duties (following the Brexit transition period), together with customs clearance costs and irrecoverable sales tax on returns eroding margins. In the meantime, ROW remained weak too with sales -18% (P1: -15%). Outlook Full year guidance remains for sales growth to be +25% this year (consensus: +29%), implying management expect a re-acceleration of growth in H2 – there have been some signs of improvement in August and September trading. However, due to investment in technology and infrastructure, EBITDA margins are now expected to be 9% to 9.5% (previously 9.5% to 10%) and capex is expected to be £275m (prev. £250m). A new warehouse will be constructed in North America in 2023. Taking the mid-point of new guidance implies a full year adj. EBITDA outcome of £198m and assumes H2 sales grow at +25% with adj. EBITDA margins up 70bps.
Results for H1 FY22 reflect a consolidation of significant market share gains achieved over the past two years with Group revenue +73% versus H1 FY20. Near term impact on profitability resulting from COVID-driven distribution cost inflation, as well as key investment in building out the Group’s multi-brand proposition should not detract from the longer-term growth potential of the Group’s platform. A PE of 25.5x falling to 18.5x is at odds with the significant market opportunity that exists as markets normalise post-covid.
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Publication of international factory list: Today’s publication of the Group’s 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.
The publication of Boohoo Group’s Economic Impact Report, released yesterday, made clear its commitment to the UK, with plans to invest more than £500m over the next five years, creating 5,000 new UK jobs in the process. The report also detailed the Group’s material contribution to the UK economy, supporting more than 8,000 full time jobs and contributing more than £2bn to UK GDP since 2009. The investment signals both the quantum of the future growth opportunity and confidence in the Group’s prospects.
Don’t cry, buy We visited boohoo’s new London offices this week to catch up with management. The key takeaway for us remains management’s confidence and focus on the Debenhams/Arcadia acquisitions and their medium-term potential. The shares are being hit on short-term trading concerns and external noise. With the potential to double turnover over the next three years, we view the current valuation as highly attractive – on 22x PER, 14x EV/EBITDA on our forecasts, boohoo is trading at a discount to a number of the structural growth retailers. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
A new partnership with Alshaya Group in the Middle East, building on Debenhams established store presence in the region, the launch of a new local Debenhams eCommerce platform and providing a new route to market for the Group’s existing portfolio of brands.
In this note we discuss the valuation discount relative to the sector and show on a PE and PEG basis how cheap Boohoo is. We detail the progress made on ESG, which has positively surprised us and credit is warranted. Lastly, with 1Q’22, the toughest quarterly comp out of the way, we expect growth to remain strong through the rest of the year and forecast c. 29% growth, ahead of the company guidance of 25%. Our conclusion is that the shares still appear to have a large ESG discount built-in, with share price still at Jan’20 levels while 12m forward EPS estimates have increased by 80% since then. At a 28x P/E multiple on consensus estimates, the share trades at a significant discount to the peer growth and at only 1.1x PEG ratio. We move to BUY, keep our TP unchanged at 380p.
Q1 trading hurdles tough comparatives boohoo’s Q1 trading performance has hurdled some fairly punchy comparatives to come in ahead of consensus. It is interesting to note how sales mix is shifting as lockdown restrictions ease; boohoo’s dress mix spiked above pre-pandemic levels, giving us confidence of the ‘normality’ trade for apparel markets and a strong read-across for the sector. With performance this year second-half weighted, there should be no surprise in unchanged guidance, although given Q1’s strong start, this may not last. Further progress on ESG, as boohoo joins Fast Forward and launches a new sustainability strategy. Buy. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
Overall Group sales growth appears robust, with decent performances in the UK and USA, but some questions may begin to arise over trading performances in ROE and ROW. We expect no change to consensus forecasts today. Trading for the 3 months ending 31st May P1 Group sales growth was +32%, (P4 FY21: +37%), a touch ahead of consensus at +28%. We note sales growth also includes new contributions from the Arcadia and Debenhams acquisitions Group gross margins were -60bps despite tough comparatives last year and were broadly in line with consensus. By geography performance varied, with UK sales growth performing strongly +50% (P4 FY21: +46%) despite cold weather persisting throughout May. The USA was also robust with sales growth at +43% (P4 FY21: +53%) despite tough comparatives. However performances appear to have deteriorated further in ROE: -14% (P4 FY21: -3%) and also in ROW: -15% (P4 FY21: +3%) - with management citing weakness due to the pandemic disrupting service and raised levels of competition. We note similar soft trends emerging at ASOS, but not at Zalando - which appears to be capturing market share (in European territories) over the pandemic. In the meantime the company continues to make good progress with its Agenda for Change programme, joining the Fast Forward initiative for auditing of the UK supply chain, as well as making further substantial progress launching its “UP.FRONT” sustainability strategy. Outlook & valuation Full year guidance remains for sales growth of +25% this year (consensus: +29%). We expect EBITDA to be more weighted towards H2 given tougher H1 comparatives. With consensus expecting full year sales growth of +29% for the outturn of the year, expectations are reasonable in our view and the valuation is undemanding on 29.4x FY22E PE given 22% forecast EPS CAGR (FY21-FY24E).
boohoo Group has announced solid Q1 FY22 trading with Group revenue +32% YOY ahead of ZC forecasts (+25%) and consensus expectations (+28%), driven by strong momentum in key markets of the UK (+50% YOY) and USA (+43% YOY) despite tough PY comps (Q1 FY21 +45% YOY).
Trading over P1 – 3 months ending 31st May Next week, boohoo will report P1 trading results for the three months ending 31st May on Tuesday (15th June). This will be the first UK online clothing retailer to give colour on trading throughout the months of April and May when stores have re-opened and thus marks a pivotal moment, in our view. boohoo last reported group sales up +37% for the 2 months ending February, at its prelims in May. We expect there to be some focus on ROE, where sales growth was particularly weak in P4 last year – slowing from +30% in P3 last year to -3% in P4. Explanations for this slowdown were lacking from management, in our opinion. We note similar trends emerging at ASOS – has Zalando captured market share in Europe? ROW at boohoo also saw a similar slowing across P4, reporting lacklustre sales growth of just +3% in P4. Comparatives last year were strong, with group sales growth up 45% (in particular, US sales growth accelerated to +79%). Within the discrete trading period last year, trading was volatile – subdued throughout mid-March and April, but ending with a strong exit rate; we therefore expect management to report mixed trading throughout the course of P1. Full year guidance is for sales growth to be +25% this year, but management – owing to the tough comparatives over H1 – expect EBITDA to be more weighted towards H2. While management’s outlook at the prelims at the beginning of May was upbeat, we note the cold weather that persisted throughout May which could have dampened performance. View With consensus expecting full year sales growth of +29% for the outturn of the year, expectations are reasonable in our view. The valuation on 29x FY22E PE – offering 22% EPS CAGR (FY21-FY24E) – also appears modest in our opinion and does not appear to be factoring in upgrades. With management progressing well, eradicating supply chain malpractice which we note appears not to be coming at the expense of margins, risks are receding here. We suspect the company is generally well positioned to adapt to re-opening trends (higher occasion wear) given the strength of its test and repeat model.
Small FY21 beat; conservative FY22 guidance 4Q sales growth beat consensus by 14ppt, 2H adj EBITDA was 3% ahead with full year adj EBITDA up 37% yoy. FY Feb-22 guidance is in line with sell-side expectations though market reaction suggests behind the buyside. Guidance may prove conservative given qualitative comments on recent trends, but much depends on unlocking of consumers'' social freedoms though FY22. The Agenda 4 Change program is making good progress, albeit there was little new today. We continue to see scope for ESG rehabilitation, re-rating and shares to Outperform. Strong customer metrics confirmed The full year adj EBITDA margin fell 20bps with 300bps headwind from international freight, and dilution from new brands, being largely offset by lower returns rates (130bps), admin leverage and improved marketing efficiency. This aided customer acquisition costs which remained market-leading at GBP41/net add, albeit deteriorated since H1. We continue to see Boohoo as having the best customer payback metrics of the pure-plays too: 1.6 years on our harmonised definition. See our recently updated benchmarking in Exane Explains: online clothing retail for peer metrics. FY Feb-22 guidance has scope to prove conservative 20% organic sales growth and 5ppt contribution from new brands both look conservative. For example Karen Millen and Coast are 100% ahead of management''s ''1x purchase price'' budget. With just GBP55m paid for Debenhams, versus pre-pandemic turnover (inc. stores) of GBP1.7bn, we see significant upside risk. 9.5-10% group adj EBITDA margins guided for FY22 (vs. FY21 10.0%) are also reassuring given dilutive impact of ramping this and the Arcadia brands back up. Scope for re-rating remains. Reiterate Outperform rating with 41% upside Operating assumptions are unchanged but higher SBC drives a trim to EPS. Boohoo trades on a lower EV/Sales to Zalando despite faster growth and 2x profitability: we think entirely explained by an...
“An increase in activity”. Though clearly early-days, today’s statement flags an encouraging increase in HORECA volumes post the relaxation of government restrictions (12-Apr onwards). The Group has traded in-line with our expectations for Apr-21 at c.30% of normalised volumes (up from c.11% in Q1/21) with “further increases in volumes expected as restrictions, particularly on hotel stays, are relaxed” (17-May at the earliest) - underpinning our expectations for the half and as per the Group’s Base-case scenario (c.50% of normalised levels by H1/21). Positive read-across from WTB. Given recent contract wins, the Group now services c.50% of the entire UK Premier Inn estate; we note the positive read-across from Whitbread’s (WTB.L, N/R) FY21 results (Apr-21) i.e. an expectation for “strong demand for 'staycations' in UK tourist destinations over summer”. Workwear (unsurprisingly) resilient. Encouragingly, Workwear volumes have continued to hold up well at c.96% of normalised levels in Mar-21 and with a slight - but continuous - improvement throughout April as more businesses reopened. On our current forecasts, Workwear represents c.51% of Group revenue and we expect it to generate c.£22.5m adj EBITA in FY21E. Strategic positioning. Poised for an expected further snap-back in volumes, the Group has commenced the commissioning of Leeds (capable of c.1m pieces/week); it is expected to be operational by 17-May and facilitate the transfer of work for Yorkshire-based customers currently processed in Wales (bringing about associated margin benefits, given reduced trunking). Furthermore, we flag that the factories mothballed during Q4/20 are now also operational (albeit with reduced headcount to match demand) and that the Exeter site fit-out remains on track for a Q4/21 completion (as modelled).
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Coming out on Friday? boohoo’s final results came in marginally ahead of upgraded forecasts and guidance thanks to a strong finish to the year, driven by strong growth in actives and spending. The US performance is a particular standout, with sales up 65% YoY. We believe there is a big opportunity for a ‘normalisation’ boost in sales as consumers come out of lockdown and start socialising, holidaying and going out. Guidance is rightly conservative, but sits behind current market expectations and PHe in revenue terms, a situation we have seen before. Our forecasts remain unchanged, on 19x EV/EBITDA, we remain Buyers. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
Trading in P4’21 remained very strong with +37% sales growth driven by UK and US, while Europe sales declined -2% in the period and RoW slowed to +2%. FY’21 sales growth of +41% was slightly ahead of consensus. FY’21 EBITDA margins stood at 10.0%, in line with consensus with gross margin up +20bps yoy, offset by higher distribution costs despite the lower returns rates due to impact from Brexit and higher air freights. The company has guided for c. 25% sales growth in FY’22E (consensus at +29%) underpinned by a strong start in March and April, with adjusted EBITDA margin guidance of 9.5-10.0% including a 50-100bps dilutive impact from recent M&A, implying any impact from the supply chain changes is absorbed within the strong growth being achieved at its core brands. Strong progress has been made under the group Agenda for Change programme for fixing its supply chain over the last year. The shares should open positively on the strong update this morning.
boohoo Group has announced results for the 12 months ended 28 February 2021, reporting a strong finish to the year, with performance ahead of ZC’s forecasts, driven by strong momentum in both the UK and USA in the final months of the year. Profit generation has been robust, despite significant cost headwinds resulting from COVID and the impact of a number of dilutive acquisitions made over the year. The shares have traded sideways in recent months, despite the Group’s continued strong trading performance and now trade on just 27.7x FY22E PE. This rating represents a material discount to sector peers (ASOS CY21E PE of 37.5x) despite the Group’s superior growth profile and profitability.
FY21 adj. EBITDA is a touch ahead of consensus while current trading has been described as “encouraging” to date. While management’s outlook is cautious, implied guidance suggests consensus forecasts are underpinned. We have some questions about the decline in ROE trading over the last reported period. Trading, 12 months ending 28th February adj. EBITDA of £173.6m (+37% YoY) versus consensus £171.3m, (consensus range: £166.8m – £179.7m) Full year sales growth was 41% versus consensus +39% (P3: +40%; H1: +45% ), implying sales growth was 37% for the final two months of FY21 - this compares to sales growth over similar reporting periods of c. 24% at ASOS (during P2) and 54% at Zalando (during Q1). By geography, full year sales were: UK: +39% (P3: +40%, H1: +37%); ROE: +30% (P3: +30%, H1: +41%, sales growth in ROE appears to have fallen steeply in P4 to just -1%); US: +63% (P3: +52%, H1: +83%); ROW: +16% (P3: +20%, H1: +17%). Gross margins were +20bps (P3: -50bps; H1:+70bps) and EBITDA margins were broadly flat, with margins helped by lower returns in the period. Net cash at year-end was £276m. Outlook & valuation Trading in the first few weeks of the financial year has been “encouraging”, but the outlook remains uncertain with management stating that the benefit of lower returns is likely to lessen, while freight costs are rising. Management now expect full year sales growth of c.25% (FY22 consensus: +29%)) and EBITDA margins at 9.5% to 10% - with new brands applying some drag to margins. Management guidance therefore implies FY22 EBITDA of c. £213m (consensus £211.8m). Valuation on our pre statement forecasts is c.27x NTM PE, with 27% p.a. 2-year EPS CAGR (FY21-23E).
Tackling supply chain concerns from the ground up Boohoo has published its UK supplier lists and the latest report from Sir Brian Leveson on overall progress to date. Boohoo has clearly made significant progress from the tone and content of this report, noting not just progress on audit, compliance and controls, but also a genuine shift in the cultural and operational approach taken at all levels of the business. Separately, we published a note this morning upgrading our forecasts to reflect the recent acquisitions of the Debenhams and Arcadia brands. On c.20x FY23E PE, with scope for a ‘back to normal’ clothing boost, the shares offer significant upside in our view. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
School of Alchemy; acquisition upgrades We are raising our revenue and profit forecasts for boohoo to take account of the recent acquisitions of the Debenhams and Arcadia brands. Coupled with a review of our underlying estimates, we are upgrading FY23E EBITDA by c.7%, which we believe remains highly conservative. Indeed, with strong growth in active customers, in our view boohoo is well placed to benefit from pent-up demand across the fashion space as we come out of lockdown. The shares sit mid-table against e-commerce peers in valuation terms, offering scope for more upgrades and re-rating, coupled with an improving ESG narrative. Buy, TP 475p. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com 9-page note
Boohoo’s faster-fashion model offers a compelling proposition, and we’ve remained constructive through the supply chain challenges. However, we see the recent acquisitions and impending expansion of its warehousing footprint as posing further risks. There are plenty of reasons around the core busin
Acquisition spree continues Well flagged by recent press reports, boohoo has confirmed the acquisition of the Burton, Dorothy Perkins and Wallis brands from the Arcadia administrator. These brands had a strong wholesale relationship with Debenhams and fit in well with the group’s recent acquisition here. There’s no impact to year 1 EBITDA, but the medium-term upgrade pressure is starting to build. boohoo has recently taken on a raft of new revenue streams that will become established into peak (Christmas 21). It won’t be long before mid-20s growth rates for FY23 and FY24 come under pressure. Reiterate Buy and 475p TP. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
Details of the deal boohoo has acquired all of the e-commerce and digital assets/intellectual property rights of the Dorothy Perkins, Wallis & Burton brands from administration for £25.2m in cash. These three brands had over 2m active customers in 2020 and will help to strengthen boohoo’s menswear offering. boohoo now has 15 brands. boohoo had net cash of £387m on 31st December before the £55m acquisition of Debenhams. Continuity of service will be provided to customers through a Transitional Services Agreement for a period of 3 months, and management expects to incur one-off transaction and restructuring costs of £10m to £15m during this time. The ongoing businesses for the Brands generated unaudited revenues of approximately £178.8m for the period to August 2020. View Discontinuation of existing lines and business (following rationalisation) will mean revenues in the first full financial year of acquisition (for boohoo) are unlikely to be little more than £25m – implying that boohoo will have paid c. 1x sales. If sales can return to prior levels of c. £180m in outer years, on a group EBITDA margin of 10%, then the deal will prove to be highly accretive. Further details will be provided at the finals in May.
Boohoo has announced an agreement to acquire the Dorothy Perkins, Wallis, and Burton brands from the Administrators of Arcadia. Total consideration of £25.2m equates to just 0.14x the ongoing online and wholesale revenue and represents an attractive price for these established UK brands. The deal executes on the Group’s strategy to further diversify its offer, with Dorothy Perkins and Wallis catering to a more mature demographic versus the Group’s core brands, and Burton extending its menswear proposition.
Acquisition of Debenhams boohoo has acquired the intellectual assets and brands of Debenhams for a cash consideration of £55m. Strategically, this brings in a number of new strands for boohoo, including greater exposure to menswear brands, an older customer demographic, a leading beauty business, a marketplace platform and potential for home and sport. There are questions over third-party brand on-boarding, management bandwidth and the operation of the marketplace. However, we see this as a really compelling transaction, giving boohoo clear traction in new market segments for little financial risk. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
The acquisition and planned relaunch of Debenhams online business is a transformational deal for the Group, establishing an ecommerce marketplace of immediate scale and high brand awareness. The deal expands boohoo’s target addressable market and opens the Group up to new product categories including beauty, sport and homeware. It is a significant step forwards in realising the Group’s ambition to operate the UK’s largest ecommerce marketplace, combining boohoo’s online capability and multi-brand platform with Debenhams leading brand recognition and extensive established network of third-party brand partnerships.
Biggest beat so far this season Peak sales were 11ppt ahead of consensus expectations, the biggest beat in our coverage so far this trading statement season, as well as achieving the second fastest absolute growth after THG (+). Boohoo benefitted from store-led rivals'' closures due to tightening COVID tier restrictions which more than offset the cancellation of the party season. Despite distribution cost headwinds, margin expectations have also been maintained. We increase FY21e adj EBITDA 3% and EPS 4% with similar upgrades to the outer year. Our target increases to 460p - reiterate Outperform. Strong sales in all regions... Group sales rose 40% yoy in the 4 months to end December, ahead of our 31% and consensus'' 29% expectations and only a mild slowdown on H1''s +45% growth. UK growth of 40% showed negligible slowdown from Q2''s +42% performance and remains ahead of ASOS'' +36%, albeit its rival has significantly closed the gap. Rest of World and Europe saw encouraging acceleration qoq, with USA moderating albeit to +51%. Performance was described as strong across all brands. ...whilst maintaining adj EBITDA margins Gross margins down 50bps were in line with expectations with full year adj EBITDA margin guidance remaining at c.10%, implying 2H margins down 60bps yoy (versus H1 +20bps) as the company continues to experience higher distribution costs as well as investing in driving customer acquisition. Full year sales growth guidance has been raised to 36-38%, albeit this implies a very sharp slowdown in the final two months of the year which we think is due to conservatism. Making progress on improving ESG credentials Winning over shareholders on this topic is likely to be as an important share price driver as earnings over the next year, in our view. The first independent report by Sir Brian Leveson has been published today concluding that the Group ''has enthusiastically started the journey and is travelling along the right road''....
Strong P3 statement boohoo’s P3 update is exceptionally strong, with 40% growth for the group and a particularly impressive 52% growth rate in the US. New, raised guidance levels takes FY21 EBITDA in line with our top of the range forecasts, c.5% upgrades to consensus. Given the pressure on freight costs and raised marketing spend, boohoo is clearly delivering leverage on central costs. There is a new leased warehouse and a progress update on the Agenda for Change. Once again, the outlook remains exciting, with significant growth potential for the existing brands and scope for acquisition. Keep Buying. John.Stevenson@peelhunt.com, Jonathan.Pritchard@peelhunt.com
Growth at boohoo group continued unabated in P3’21 (Sep-Dec 2020) with sales up 40% yoy, in line with +44.5% in 1H’21. Gross margins should be near flat YoY despite -50bps in P3. FY’21E guidance has been increased (again) to revenue growth of 36% to 38% range (28% to 32% previously) and adj. EBITDA margin guidance retained at c.10%. The group will be adding a third warehousing site in the UK in April to increase capacity to support the growth. Progress on ESG is ongoing with the appointment of Sir Brian Leveson to provide independent oversight of the Agenda for Change programme. While the financial and operational performance suggest a BUY, we remain on the side of caution given the scale of the ESG challenges, the possibility of follow-up investigations and potential financial impact from cleaning up the supply chain. We remain HOLD with an increased 380p TP to reflect earnings upgrade.
Sales momentum from H1 has continued into P3, such that management guidance has been upped, implying consensus upgrades of 6% to 9% (see details below). Reporting P3, 4 months to 31st December P3 Group sales were +40%, versus consensus of +29%. By Geography, UK sales were +40% versus P2: +42% (P3 consensus: +23%), ROE: +30% versus P2: +21% (P3 consensus: +22%), US: +52% versus P2: +86% (P3 consensus: +53%), ROW: +20% versus P2: +12% (P3 consensus: +19%). Gross margins were down 50bps (H1:+70bps) versus implied consensus expecting flat gross margins across H2. Elsewhere, management sees a small cost headwind from Brexit, which it believes it will be able to mitigate, and has announced that it is finalising plans for an extension of UK warehousing capacity ("UK3"), with a new site to open in April 2021. Meanwhile there is an update on the “Agenda for change” which shows steady progress. Outlook and View Outlook is now for full year sales growth of between 36% and 38% (previously +28% to +32%; FY21 consensus: +35%) and EBITDA margins are now expected to be 10% (previously 10%; FY21 consensus: 9.9%). This implies, (taking the mid-point of sales growth guidance) that sales growth needs to be “high single digit %” for the remainder of the year to hit guidance, or that management expects FY21 EBITDA to be c. £169m (consensus: £159m). By way of example, if the outturn of the year is for full year sales +41% (implying P4 sales growth maintains the momentum from P3), EBITDA for the year would be £174m (assuming an EBITDA margin of 10%). There are clearly upside risks to forecasts this year, however, we remain cautious on medium term guidance for EBITDA margins to be 10% given our concerns about potential supply chain disruption due to recommendations in the recent review to rationalise the supplier base within 12 months. Nevertheless, we continue to believe that, so long as no more than 10% of boohoo’s UK sold items are linked to unethical sources, the higher cost required to source such items ethically would be unlikely to impact margins by more than 100bps (see our note: "And this, too, shall pass..." 14/07/20 The valuation (in our view) already discounts these concerns and on (pre-statement forecasts) 34x NTM PE looks undemanding, given a 27% p.a. 2-year EPS CAGR (FY21-23E).
Boohoo has delivered strong results over the peak trading period for the four months ended 31 December 2020. Group revenue is +40% YOY, with robust growth seen across all brands and regions. The Agenda for Change programme is progressing at pace, demonstrating the Group’s commitment to setting a new standard for ethical supply chains in the fashion industry.
Boohoo has announced meaningful progress in its Agenda for Change Programme, to deliver long lasting change to its supply chain and business practices. Sir Brian Leveson PC has been appointed to provide independent oversight of the programme, with KPMG engaged to provide additional resource, expertise and independence, working alongside the Group’s internal responsible sourcing and compliance team, as well as with external supply chain audit specialists Bureau Veritas and Verisio. We believe the calibre of the appointments reflects the Group’s unwavering commitment to implementing in full, and with complete transparency, all recommendations of the Independent Review.
Sales and profits undented by supply chain allegations 44% sales growth in Q2, implying no material slowdown since the Leicester supplier ''sweat shop'' broke, was ahead of our above-consensus expectations, as well as that implied from the social media engagement analysis in our recent upgrade report. H1 adj EBITDA margins leveraging 20bps was also a positive surprise given COVID-related challenges. We increase adj EBITDA forecasts by 6-9%, sitting above increased guidance, our DCF-based target rises to 420p and we reiterate our Outperform rating. UK accelerates despite UK allegations... UK growth accelerated to 42% in Q2 (to end August, from 30% in Q1) despite: i) allegations emerging in late June of widespread worker abuses in UK supplier factories, ii) subsequent loss of wholesale accounts, iii) 14ppt tougher comparative basis qoq, and iv) the reopening of store-led rivals after the end of lockdown. Following Friday''s publication of Alison Levitt QC''s independent supply chain review, today''s presentation elaborated on the company''s extensive commitments to improving supply chain compliance and associated corporate governance. Implementation and ongoing monitoring will of course be required to convince investors fully that this issue is now being appropriately addressed. However, at the risk of tempting fate, the threat to brand reputation and consumer demand now appears to have passed. Strong current trading in September further suggests 14-21% 2H sales growth implicitly guided is very conservative (Exane estimate +33%). ...with COVID-related gains slightly offsetting COVID-related headwinds 145bps marketing leverage from higher ROI, 100bps from lower returns rates and, implicitly, 230bps headwind on distribution costs from higher air freight costs are all themes consistent with that of other online retailers. Reassuringly, increased FY adj EBITDA margin guidance of c.10% (from 9.5-10.0% prior) allows for tailwinds fading and headwinds...
Trading in 2Q’21 remained very strong with +44% sales growth, well ahead of consensus expectations of +30% and continuing the 45% growth pace seen in 1Q’21 despite the negative publicity from the supply chain issues in Leicester. 1H’21 EBITDA margins stood at 11% (1H’19: 10.8%), with gross margin up +70bps yoy helped by the lower returns rate, while operating costs increased +50bps yoy due to inflationary pressure in distribution costs. Cash balance at end of 1H stood at £344.9m, up from £240.7m at end of FY’20 driven by very strong free cash flow generation (£101m) and supported by the equity raise. The company has upgraded FY’21E guidance to 28% to 32% sales growth (up from +25%), with adjusted EBITDA margin of 10% (up from 9.5% to 10.0% previously). The shares have recovered the entire value lost post the Sunday Times article in July. At 41x 12m fwd PE and 26x EV/EBITDA, we believe the risks highlighted by the supply chain review are not fully captured.
Strong momentum in P1 has continued into P2, particularly in the UK where sales accelerated over the period. Full year sales and margin guidance has been upped, such that there is room for consensus to increase by c. 6% to 10% in our view. H1 trading Adjusted EBITDA was £89.8m (+48%) versus consensus of £81.2m. with higher gross margins and reduced marketing helping to offset increased distribution costs. Net cash was £345m (consensus: £341m). Group H1 sales were £816.5m, +45% (P1: +45%), implying the run rate in P1 continued over P2. Consensus was for H1 sales of £773m (+37%). Group gross margins were +70bps (P1:+ 60bps). Consensus was for flat H1 gross margins. Boohoo has not broken out brand performances; therefore, by territory, H1 sales in the UK were +37% (P1: +30%) with gross margins up +180bps. In the UK, performance was strong across all brands and gross margins were helped by lower returns. In ROE, sales performance was also strong across all brands, particularly for Nasty Gal and boohooMan. Sales growth was +41% (P1:+66%) with broadly flat gross margins, where margin gains from lower returns were offset by higher freight costs. Performance in the US was helped by strong sales in the PLT and boohooMan brands, with sales up +83% (P1+79%). Gross margins were down 260bps due to promotional activity and distribution costs, and also impacted by higher freight costs. Outlook Full year sales growth is now expected to be between 28% and 32% (previously +25%; FY20 consensus: +29%) and EBITDA margins are now expected to be 10% (previously between 9.5% and 10%; FY20 consensus: 9.5%). This implies (taking the mid-point of sales growth guidance) that sales growth needs to be less than 20% for the remainder of the year to hit guidance and that management expect FY21 EBITDA to be c. £160.5m (consensus: £151.4m). View Management remains cautious given macroeconomic uncertainty, but sales in September have started well and inventory levels are currently up 80% suggesting management is “cautiously optimistic”. We highlight that if sales slowed to just +30% in H2, assuming a 10% EBITDA margin, EBITDA would be c. £170m. Still, it is important to remember that the recent Review highlights the need for supplier rationalisation which could, in our view, restrain some sales growth. That said, the valuation is undemanding pre-forecast changes at 45x NTM PE, offering 27% p.a. 3-year EPS CAGR (FY20-23E).
Today’s announcement confirms the strong trading momentum seen in Q1 has continued YTD. Group sales are +45% YOY with revenue growth across all geographies and brands, and profitability improving YOY.
Boohoo’s intent to move forward positively and rectify the issues of the past is noted and the share price reaction post the publication of the supply chain review report reflects this. However, we would be cautious and pause as there is much work to do and the report was in parts scathing. The investigation was limited in time, resources, data and scope, and whilst it has cleared criminality, risks of Government intervention are real. We question whether a potential provision should be raised and question if Boohoo can make the same profit margins if the factories are required to pay the correct wages and maintain appropriate standards of working. The report is long and detailed, and we highlight the key findings below. As with these investigations, there remains many unanswered questions.
Boohoo has released the now complete Independent Review into its UK supply chain in full this morning. Whilst a number of areas for improvement have been identified, there is no suggestion failings were deliberate or intentional and the chances required involve a relatively easily achieved realignment its of governance systems. We believe the Group remains well-positioned to lead the fashion e-commerce market in the future and can successfully implement an agenda for change in UK garment manufacturing.
Investors haven''t fully forgiven, but most consumers seem to have forgotten Boohoo shares are 27% off their YTD highs, albeit 45% up from recent lows following early July press reports questioning wage and safety compliance in its UK supplier factory base. Ahead of 1H results (30 Sept.) and publication of the independent review findings we attempt to assess reputational risks to sales growth using social media data and scenario-test headwinds to margins. We trim forecasts c.6% but remain 6-12% ahead of consensus. ESG-focused investors are unlikely to buy Boohoo now, but we see a good chance the financial impact won''t be severe and the company can gradually rehabilitate its standing amongst investors. We upgrade to Outperform. Social media trends are looking healthy... We delve back into our Survey of Shoppers to understand the importance of ethical credentials for clothing shoppers, and look at how that has increased recently. We also introduce a detailed tracker assessing brand engagement on Instagram, the dominant social media platform for the group''s customer base. Since the scandal broke one month into the as-yet unreported Q2 we have continued to see positive trends in metrics such as: followers; likes; comments and relative engagement for the Group''s major brands. We show the relevance and correlation of these metrics as well as potential risks of over-reliance on such indicators. The picture they paint is not one to suggest growth has collapsed. Further negative press, such as is likely to be seen when the investigation report is published, could reignite consumer awareness of the accusations but so far it appears the issue has been forgotten by Boohoo''s target market. ...though costs of sourcing with more ethical rigour could dent margins Investments committed by management so far to enhance supply chain integrity would only create a small drag. If accusations of supplier wage abuse turn out to be widespread then gross margin...
Boohoo has been rocked by an ESG scandal, and due to government pressure, could be subject to prolonged further investigations. The allegations have raised many questions on corporate governance and culture. While the initiatives as laid out by Boohoo on 8 July go some way to firm up some of these concerns, we take no view on the scandal and wait for the investigations to run their course. In this note, we: (1) detail that there were red flags and discuss how investors can avoid making the same mistakes again when forming an ESG framework for investment decisions; (2) show how Boohoo’s share price has, so far, reacted similar to VW’s after its own scandal; (3) discuss the nature of the vertical integration of manufacturing; and (4) provide a timetable of the many news stories, RNSs, and events that have occurred this year, which have combined to rock the share price. We note our TP is +37% ahead of the share price, but retain HOLD for now due to the ESG issues.
Independent review launched: The Boohoo Group has announced the launch of an immediate independent review of its UK supply chain, intended to identify any areas of risk and non-compliance and to further strengthen the Group’s compliance procedures to ensure similar allegations will not recur in the future. The review is to be led by Alison Levitt QC, a highly experienced advocate who has previously reported on complex issues, including safeguarding enquiries. Boohoo has also announced an initial additional £10m investment in ensuring any supply chain malpractice is eradicated and is accelerating its independent third-party supply chain review with ethical audit and compliance specialists Verismo and Bureau Veritas.
Management have responded with four key proactive steps. They intend to launch of an independent review led by a QC, invest £10m into the supply chain to improve ESG credentials, will further boost their internal audit structures led by ethical specialist Verisio and commit to appointing two new NED’s to beef up the Board. All these steps we commend and should start to help re-build confidence that Boohoo intends to do the right things. They fully acknowledge that further investigations will be ongoing and have committed to their full co-operation with the Home Secretary and local authorities. While serious questions will remain for some time, today is the first positive step forward in transparency. The shares have fallen 33% since Sunday. These now suggest a 7% EBITDA business down from the 10% historically achieved. We have said since Sunday we remain huge fans on the strategy but we remain HOLD reflecting the need for comfort with regards to the outcome of all these investigations.
The response from Boohoo does not go far enough in our view. The statement only really speaks of investigating the particular factory in question and raises the question of how many other breaches management is potentially unaware of. The rest of the statement speaks of procedures and checks that management has already put in place, which if the allegations are true, have clearly not been robust enough to stop significant breaches happening. With an investigation requested by the Home Secretary into the matter, we think Boohoo had an opportunity to show leadership and get ahead of these allegations and this statement will do little to convince stakeholders. We raise concerns on corporate governance and reiterate our suggestions we laid out in our note yesterday. While we are huge fans of Boohoo’s strategy, with concerns on corporate governance and ethics escalating, the outlook for the shares becomes less certain.
Weekend press articles highlighting breaches in Leicester’s clothing factories have directly implicated Boohoo. These allegations are just that, at this stage, and this is not the first time Boohoo has had negative press on ESG issues, such as failing to meet NMW levels. With an investigation requested by the Home Secretary into the matter, we think Boohoo should show leadership and once and for all deal with these concerns head-on. Setting up an independent team to investigate, then formulating future structures for enhanced compliance, are some of the ways to start getting ahead of the bad news. Broader corporate governance concerns may well arise from this. While we are huge fans of Boohoo’s strategy, with concerns on corporate governance and ethics escalating, the outlook for the shares becomes less certain. For now, we move to a HOLD with a much reduced target price as a result.
A blowout Q1 with sales up 45%, gross margins +60bps to 55.6%. While this performance has no doubt benefited from the group’s main bricks & mortars competitors being closed, it truly is a standout performance. The group intends to maintain adj. EBITDA margins of 9.5% to 10% meaning as competition returns, and undoubtedly promotional activity rises, the group could have £34-42m of additional marketing firepower over FY’21, over and above last year’s £117m to play with. Having recently acquired the minority interests in PLT, boohoo continues to build its house of brands by acquiring the online businesses and associated IP of, Oasis and Warehouse. Boohoo is now looking like the pre-eminent leader in womenswear in the UK now operating with a stable of nine brands. The group still retains over £350m of net cash to pursue further M&A. Boohoo has 4.6%, 0.4%, and 0.4% shares of the UK, EU and US online fashion markets respectively, and as M&A across the industry ratchets up over the next few months, we expect boohoo will play its role. Reiterate BUY and increase our TP to 500p reflecting the +12% EPS.
Today’s statement reveals incredibly robust Q1 trading across the Group’s brands and regions, with a positive outlook and guidance reinstated for the remainder of the financial year and beyond. In addition, the Group has announced the acquisitions of Oasis & Warehouse, bringing two well-recognised and complementary brands onto its platform. We believe the unprecedented disruption resulting from the COVID-19 pandemic has accelerated the channel shift to online where we see BOO as the clear winner, with an established and leading model positioned to consolidate the market.
boohoo reports very strong P1 trading which we expect to lead to significant upgrades of c.10%-15% P1 trading, 3 months to 31st May FY21 P1 Group sales were £367.8m, +45% YoY (consensus: £291.4m, +14.6%), implying a very strong end to the quarter given subdued growth in mid-March and mid-April. Brand performance has not been broken out, but there have been strong performances across all geographies, especially in ROE and US up +66% and 79% respectively (FY20 P4: ROE: 61%, US: +53%). Gross margins were also up +60bps to 55.6% (consensus: 53.6%). Areas such as loungewear and athleisure have performed well “as customer buying habits adapted to a stay at home lifestyle”. Balance sheet, M&A, outlook and valuation Today, boohoo has also acquired the brand Oasis for £5.25m which reported full-year direct online sales of £46.8m in the year to February FY20. The Group now has excess funds of £350m following the £197.7m placing and pre-reported acquisition of the remaining stake in PLT earlier in the quarter. Outlook: As such, management now expects profits for the year to be ahead of expectations with full-year sales growth of +25% (FY20 consensus: +18%) and EBITDA margins between 9.5% and 10% (consensus: 9%). This implies that sales growth needs to be just +20% for the remainder of the year and that management expect FY21 EBITDA of c. £150m (consensus: £132m). Some conservatism has been built into management expectations given that it anticipates higher levels of markdown and carrier cost inflation. There will no doubt have been some benefit in this period given reduced levels of competition, however, this is a strong performance and the read-across for ASOS is also positive (see our recent note). Valuation, pre forecast changes, is 57x NTM PE with EPS growth of 16% p.a. for FY20-23E.
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The announced acquisition of the remaining 34% stake in prettylittlething is a very shrewd and positive move. We estimate the deal values 100% of PLT at a market value of £998-1,225m, suggesting a 12m forward 12-15x EV/EBITDA (1.4x-1.7x EV/Sales), which are around half of the respective current multiples for boohoo group. However, the group has likely acquired this stake at a 30% minority discount, suggesting £300-367m value which has not been paid for and therefore accrues to group shareholders. Boohoo still retains c.£350m of net cash to pursue further M&A. We forecast £215m of FCF over the next two years, leading to net cash of £476m by year-end FY’22E, excluding further M&A. This gives significant firepower to continue developing the group’s stable of own brands, broadening its customer base and opportunity set across the global fashion market. The deal drives our EPS upgrades of 13-14% and Target Price of 490p (from 430p). Reiterate BUY.
Boohoo Group has announced the acquisition of the remaining 34% of shares in prettylittlething.com (‘PLT’). - Terms of the deal: Boohoo Group has acquired the remaining 34% of shares in PLT for initial consideration of £269.8m, comprising cash consideration of £161.9m and share consideration of £108.0 including £54m of share consideration subject to an 18 month lock-up, £54m of share consideration subject to a 24 month lock-up payable on completion. A further £54.0m of contingent consideration is payable if the Group’s share price averages 491p (+46.7% on last night’s closing price) over a six-month period between completion and 14 March 2024. PLTs management team will remain in the Group, with the structure of the share consideration providing strong alignment of management interests with the wider Group shareholder base.
Details of the deal The remaining 34% stake in Pretty Little Thing (“PLT”) has now been acquired for £269.8m, potentially rising to £323.8m. This values PLT at between £793.5m and £950m. This implies a valuation of between 16.8x to 20x PE based on historic FY20 earnings, or a PE of 11.9x to 14.2x on our FY22E estimates (9.4x to 11.2x FY22E EV/EBITDA). The transaction will be financed through a combination of £161.9m of cash upfront funded from its balance sheet, and shares in boohoo worth £107.9m. A further contingent consideration of c16m boohoo shares worth £54m will be paid subject to the Group's share price averaging 491 pence per share over a 6-month period between completion and a longstop date of 14 March 2024. The maximum total number of shares used for consideration represents 3.9% of the group's issued share capital. Post deal, boohoo will have approximately £350m of cash to fund further acquisitions following its recent placing. View On our estimates, the deal would be immediately earnings enhancing (adding approximately 1p to FY21E earnings). We had previously ascribed a value of either 1.5x FY21E sales or 25x FY21E EBITDA to PLT earnings, implying a valuation in the range of £1.2bn and £1.6bn for PLT. The acquisition draws a line under recent concerns surrounding potential dilution from acquiring the remaining 34% stake in PLT. We would add that we too have no issues with the representation of free cash flow reported by boohoo or the reported profitability of PLT.
We note this morning’s announcement from Boohoo Group strongly refuting several allegations made in a short-selling note published yesterday afternoon. In our opinion arguments made in the short selling note are flawed and do not disclose any new or unexpected information about the Group. The unprecedented market backdrop resulting from the COVID-19 crisis has only acted to highlight the strengths of Boohoo’s agile, pure play, e-commerce model and we see current share price weakness as offering an attractive entry point.
SAS: Meet the invincible stocks, Boohoo, Vistry,
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SAS: Meet the invincible stocks, Boohoo, Compass Group, Imperial
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The strategic capital raise affords Boohoo a command and control approach unlike any other branded fashion player we know of. Its war chest of £500m will, if used, change the size and shape of the group, embedding its position as one of the fastest growers in global fashion. COVID-19 may have tempered recent demand, but there is still growth in all its brands and all its geographies, no inventory overhang and margins are well underpinned. The model is impressively agile vs. its closest peers, but it is Boohoo’s expanding stable of brands where its long-term value truly sits. Long-term, think Inditex online; near-term consider its resilience. Conventional metrics make the valuation optically high, but >13x ROIC/WACC, c.10% EBITDA margins, double-digit growth and c.£500m of cash is unparalleled. BUY.
Boohoo Group has raised £197.7m in new equity as is readies itself to take advantage of M&A opportunities expected to emerge in the global fashion industry over the coming months. Following the fundraise we estimate the Group to have c.£500m in cash, giving it significant firepower to rapidly execute attractive brand acquisitions as they arise.
Strong end to year, with P4 sales growth sustained across both established brands (boohoo: P4: +40%, PLT: +42%) despite tough comparatives for the boohoo brand. Strong sell-through also led to a pleasing gross margin performance in H2 for the boohoo brand, with gross margins up 100bps (P3: -20bps) while gross margins were flat over P4 for PLT having been -200bps, in H1 and -130bps in P3. Consequently boohoo finished the year with full year sales ahead of guidance at +44% and with EBITDA margins towards the top end of its guided range at 10.2%. Trading since year end has been resilient, with boohoo achieving positive sales growth (albeit much reduced from P4 levels) in mid-March. New customer acquisition and improved existing customers spend has led to sales growth improving in April. Management believes that gross margins, to date, have held up relatively well too. KPIs and Value churn: appear to be in good shape with larger baskets and increased customer purchase frequency continuing to drive sales per customer (FY20: +11%). As such, management now believes that annual value churn (lost sales attrition per cohort) is less than 15% supported by existing customers spending more in later years. With value churn higher for newly acquired brands, underlying churn for established brands must be even better. This is significant when considering customer lifetime value. Forecasts: We cut our FY21E PBT forecasts by 17% and now assume full year sales growth of 16.5% which assumes P1 sales growth of 5% before normalising (see overleaf). Inventory levels are currently elevated at +48% which may lead to some gross margin dilution. We factor in gross margins falling 100bps in FY21E before recovering in outer years. Our target price is trimmed to 355p. Buy reiterated.
Boohoo group continues to outperform, delivering another set of excellent results today. One can’t ask for much more than +44% sales growth, 30bps EBITDA margin expansion, FCF growth and cash balance growth. The Group had net cash of £241m on the balance sheet as at the end of Feb’20. Trading in March has been mixed with a marked slowdown in sales in the 2nd half of March, but sales have returned to yoy growth in April. Given the uncertainties, Boohoo has not provided any guidance for FY’21. However, the company has stress tested its cash flow and even in a scenario of full shut-down of the business until Feb’21, the Group will have sufficient funds to continue trading solvently, even before obtaining any government loans. The group’s healthy financial position gives us confidence in its ability to navigate through the near-term uncertainty. The shares have fallen -13% over the last 3-months, but still trade at 2.0x EV/Sales on consensus estimates reflecting the brands and financial strength of the business. We reinstate our BUY with a 330p target price.
Boohoo Group plc has released results for the 12 months ended 29 February, reporting a solid finish to the year with results at the top end of guidance and comfortably ahead of ZC’s expectation. This impressive end to FY20 is somewhat overshadowed by the unprecedented disruption the Group and the wider retail industry is facing as a result of the ongoing COVID-19 pandemic. Whilst YTD trading is described as mixed, we are encouraged by confirmation that the Group remains in positive growth YOY. We have long been of the opinion that boohoo represents a best in class ecommerce operator, with one of the most agile and flexible operating models in the industry. The Group entered this pandemic from a position of relative strength with a strong balance sheet backed by £240.7m of net cash. Whilst the near-term shock of COVID-19 is difficult to quantify, and our FY21 forecasts move lower to reflect this uncertainty, we believe current shifts in consumer behaviour will persist beyond this pandemic driving a return to growth in line with previous medium-term guidance from FY22 and beyond.
EBITDA has come in a touch ahead of market expectations, with sales accelerating across P4 for both the boohoo and PLT brands coupled with strong gross margin performances as well. Since mid-March, trading has been volatile with lower YoY growth, but boohoo has seen trading improve in recent weeks. Formal guidance has now been withdrawn. Headline details FY20 Group sales were £1,234.9m, +44% YoY (consensus: £1222.6m, +43% YoY), Group P4 sales accelerated to +47% (P4 implied consensus sales growth estimate: +38%), driven by an acceleration in both the boohoo brand and PLT as well as within the UK +46% and sustained strong performances in ROE and US, up c.+64% and +53% respectively. Adj. EBITDA was £126.5m, +50% YoY (consensus EBITDA: £123.6m) with margin up +30bps at 10.2%, towards the top end of the guided range (10% to 10.2%). boohoo brand FY sales were £600.7m, +38%, above full-year expectations (FY20 sales growth consensus: +36%), implying that sales momentum was sustained over P4 at +40% (P3: +42%) despite tough sales comparatives last year. Boohoo brand full-year gross margin was -30bps, implying gross margin was up in H2 by +100bps (P3: -20bps). Gross margin was up strongly in P4 last year (over +200bps). PLT remains solid, with full-year sales growth of +38% (consensus FY sales growth: +36%), implying sales growth accelerated to +42% during P4 (P3: +32%) – sales growth comparatives were neutral on a 2-year basis. PLT gross margins also appear to have improved in H2 and within the discrete P4 period. We estimate gross margins were flat over H2 (P3: -130bps, H1: -200bps). Elsewhere, the performance at Nasty Gal remains strong with FY sales +106% (P3 YTD: +123%), now representing 8% of sales. Outlook Formal guidance has been withdrawn. Since mid-March, YoY sales growth declined but has since improved in recent weeks. We would caution that inventory levels appear to be elevated, up +48% – in part a function of developing newly acquired brands – but there may be potential for some gross margin weakness should trading remain subdued.
Pure-play fashion brand Boohoo delivered strong momentum in FY2020 with revenue growth of 44% to £1.23bn and adjusted EBITDA growth of 50% to £127m, with an EBITDA margin of 10.2%. The growth was broad based across all brands and regions with strong market share gains in the UK and across Europe and the US. Given the volatile trading pattern in recent weeks as a result of Covid-19, the company has withdrawn its previous guidance. As a result, we withdraw our forecasts at this stage too until there is further clarity. All that said, Boohoo is a very well-run Company that had excellent momentum going into this crisis and a significant global opportunity over the medium term. We note the strength of the balance sheet with net cash of £241m which will help the company weather the current storm. Until there is further clarity, we change our rating to UNDER REVIEW (from HOLD) and withdraw our forecasts, for now.
boohoo has delivered strong P3 sales ahead of expectations with a particularly good performance in the boohoo brand. As such, sales guidance has been upped as well as EBITDA margin guidance. Consensus sales growth expectations for next year also now looks conservative. We expect consensus FY20 EBITDA forecasts to move up by c.5% up to c.£122m P3 details, 4 months to 31st December, 2019 Group sales +44% (consensus: +39%; H1: +43%, Q2: +47%) boohoo brand sales +42% (consensus: +28%) following Q2’s strong +41% (Q1: +27%). Gross margin -20bps, having been +20bps in H1. PLT has maintained momentum, +31% (consensus +39%; H1: +41%; Q2: +40.4%). Gross margins -130bps (H1:-200bps). Elsewhere, the performance at Nasty Gal (now c. 8% of sales) continues to be strong, +102% (consensus: +110%), after +148% in H1. Gross margins stable, down just -10bps We understand that newly acquired brands have all been performing well Outlook FY sales growth guidance has been increased to +40% to +42% (previously +33% to +38%) versus consensus of +39%. EBITDA margin guidance has been upped to be between 10% and 10.2%, (previously 10%) versus consensus expectations of +9.9%. Generally comparatives across the main brands soften over Q4. Taking the high end of management’s new sales guidance and mid-point of EBITDA margin guidance suggest EBITDA of £123m in FY20. Next year (FY21), consensus expects sales growth of c. 27% which is now looking conservative: With Nasty Gal at 8% of sales and growing at over 100%, this implies the combined performance of the mature brands only needs to be c. +20% to meet consensus sales growth expectations.
Boohoo group continues to outperform, delivering another set of excellent results today. Upgraded sales growth guidance range for FY20E (Feb y/e) to 40-42% (from 33-38% previously) and increased EBITDA margin guidance to 10.0% to 10.2% (from c.10% previously) implies EBITDA upgrades of c.8%.
Boohoo Group has delivered a stellar performance over the key Christmas trading period resulting in a further upgrade to FY20 guidance, its third since 5 th September. Strong growth has been seen across all brands in all key geographical regions. We note the excellent performance seen at the Group’s most mature brand boohoo, where sales in the four months to December are up 42%, an acceleration on the 27% YOY growth posted in Q1 and a continuation of the exceptional 41% growth seen in Q2 of this year. Revised EBITDA margin guidance of 10.0% to 10.2% (previously c.10.0%) is after accounting for investment in three brands acquired in the year and implies strong underlying trading in the Group’s more established brands (boohoo.com PLT and Nasty Gal). The Group continues to deliver an impressive cash performance, with £245m net cash at 31 December.
Boohoo Group has released a brief statement confirming ongoing strong trading across its key brands (boohoo.com, PrettyLittleThing, Nasty Gal and BoohooMAN) and another record-breaking performance over the allimportant Black Friday weekend. Confirmation that the Group is trading “comfortably in line with market expectations” (FY20 company complied revenue growth consensus +37.6% YOY), implies growth at the top end of management’s guided 33% to 38% range. We upgrade our forecasts to reflect this, having previously sat at the mid-point of this range and the lower end of consensus. We see scope for history to repeat itself and deliver further upgrades in January, given management’s traditionally cautious stance ahead of peak December trading in contrast to ongoing momentum across the Group’s portfolio of brands.
It is difficult to pick holes in the H1 reporting and management presentation. The group's performance and momentum is very impressive when set against the market backdrop and its peers.
Following the completion of the nuclear island “common raft” for the first unit of Hinkley Point C (HPC) in June 2019, EDF has undertaken a detailed review of the project’s costs, schedule and organisation. The review has concluded that: (1) The next milestone of completing the common raft for Unit 2 in June 2020, announced earlier this year, is confirmed; (2) The previously communicated risk of commercial operations delay of unit one and two (of 15 months and nine months respectively) has increased; (3) The project completion cost (in £2015) is now estimated between £21.5bn and £22.5bn, an increase of £1.9bn to £2.9bn compared to the previous estimate. The cost increases reflect challenging ground conditions which made earthworks more expensive than anticipated, revised action plan targets and extra costs needed to implement the completed functional design, which has been adapted for a first-of-a-kind application in the UK context Under the terms of the Contract for Difference, there is no impact for UK consumers or taxpayers, but EDF’s project rate of return (IRR) for HPC is now estimated between 7.6% and 7.8%, versus a previous expectation of around 8.2% with the previously communicated delay risk.
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An incredibly strong trading performance across all key territories and brands has driven H1 FY20 sales growth of 43% and seen the boohoo Group break through £1 billion of sales in the 12 months to 31 August 2019. Of note is the ongoing acceleration of growth in the boohoo brand, with Q2 FY20 sales +41% YOY, versus +27% in Q1, and 16.2% for FY19, an impressive achievement for the Group’s most mature brand. This solid first half performance underpins results for the full year, with the Group entering the key second half trading period which includes black Friday and Christmas with substantial fire power for investment in its core brands’ proposition as well the three new brands acquired in H1. At last nights close the shares trade on an FY20 P/E of 51.6x falling to 41.0x in FY21. We believe the Group commands a premium to the sector given its superior growth, sector leading levels or profitability and strong cash generation underpinned by a negative working capital cycle.
EBITDA has come in ahead of market expectations giving the company plenty of ammunition to invest in new brands over H2 such that consensus forecasts are likely to remain unchanged this morning. Pleasingly, the boohoo brand and UK have seen a significant acceleration in performance over Q2. The details H1 FY20 Group sales £564.9m, +43% YoY (consensus: £547.7m, +39% YoY), implying a satisfactory finish to Q2 with Group sales +47% over P2 (P2 implied consensus sales growth estimate: +39%), driven by an acceleration in the boohoo brand and within the UK, where sales went from +27% in P1 to +41% in P2 Performances in the ROE and US were sustained, up c.68% and 64%, respectively. Adj. EBITDA £60.7m, +53% YoY (consensus: £56.6m) with margin up 80bps at 10.8%, meaning boohoo is on track to meet full year guidance for 10% EBITDA margins. By division boohoo H1 sales were £281m, +34%, implying sales also accelerated over P2 to +41% (P1: +27%) and above expectations (H1 consensus: +26%). Gross margins were +20bps for the half, despite a very tough comparative over Q2 when promotions were reduced last year. The performance at PLT remains solid; we estimate sales growth was 41% during P2 (H1: +41%; P1: +42%; H1 consensus: +44%). While comparatives were softer last year (when stock was transitioned to the new Sheffield warehouse), we suspect boohoo’s acceleration in this period may have affected PLT’s. In line with management’s expectations, gross margins continue to normalise and are down 200bps over H1 (P1: -280bps). Elsewhere, the performance at Nasty Gal remains strong +148% (P1: +153%). Outlook & Valuation There is no change to guidance following the recent trading update where full year sales growth guidance was raised to +33% to +38%, with EBITDA margins of 10%. (IFRS16 adjusted) and 9.5% (pre IFRS16 adjusted). Consensus for FY20 sales growth is 36% with EBITDA margin 9.6%. Medium term sales and margin guidance has also been maintained at +25% and c.10% respectively. We continue to believe valuation is undemanding on 19.5x FY21e EV/EBITDA.
M&A in the UK consumer space is increasing. We screen for those companies with international earnings and strong forecast cash flows, while also highlighting those where market caps have been hit hard since June 2016.
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Boohoo group continues to outperform, delivering a very positive H1 trading update. Management has upgraded sales growth guidance for FY20E (Feb y/e) to 33-38% (from 25-30%).
CYBG’s statement describes an “unprecedented volume of PPI Information Requests received during August” representing “more than eight months’ worth”, i.e. rather more than just a “late surge”. Estimates of the required top-up charge remain uncertain at this stage given that it is too early to determine the “quality” of the information requests. CYBG’s (provisional) guidance range of £300m-£450m is proffered on the basis of a complaint conversion rate of anything between 5% and 13%. £100m of the expected top-up is attributed to higher processing costs; this is, we think, a more reliable guide given that it is primarily a function of volume rather than “quality”. For other banks, we see PPI top-ups as merely constraining the scale of capital return. In the case of CYBG, the effect of the guided PPI top-up is to cut its 30 June 2019 pro forma CET1 capital ratio to 12.7-13.3%, i.e. extinguishing its capital “surplus”, albeit (unless the actual outturn is considerably worse than guidance) still maintaining ratios comfortably above regulatory requirements. Before today, CYBG seemingly offered the potential to morph into a high-yield stock, with management guiding to a 50% dividend payout over the medium term. We now assume no dividend in FY19e and only 1p/3p/6p through FY20/21/22e. We have always regarded the CYBG/Virgin Money transaction as logical, albeit with the acquisition terms loaded in favour of CYBG’s shareholders in the context of its legacy issues. For ex-Virgin shareholders, that appears painfully true today. TP cut to 170p (from 220p). However, despite inherent risks, trading on 0.6x FY20e tNAV for ROTEs of 5.6/7.5/11.0% in FY20/21/22e, Buy rec maintained.
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Boohoo Group has announced an upgrade to FY20 guidance on the back of continued strong trading momentum over its second quarter ended 31 August 2019. Strong revenue growth across the Group’s key brands (boohoo, boohooMAN, PrettyLittleThing and Nasty Gal) confirms the Group’s multibrand strategy is bearing fruit, with fears around potential cannibalisation firmly allayed. Top-line outperformance is driving operating leverage at Group level, enabling it to maintain full year EBITDA margin guidance at 10% despite the ongoing investment being made in the three brands acquired in the first half. Today’s announcement represents an impressive tenth consecutive upgrade in management guidance over the last three years, as the Group continues to outperform the market and consolidate its position as a leading multi-brand fashion ecommerce platform.
Trading in H1 has been ahead of expectations with strong revenue growth and operating leverage growth across all brands and geographies. As such, full year sales are now expected to be between +33% and+38% (versus previous guidance of +25% to +30%) and consensus of +32%. Q1 sales were +39%, thus new guidance implies sales growth is expected to be over c. +34% for the remaining three quarters of the year. The Q2 performance was clearly very strong. Whilst there was some operational leverage in H1, management now expects to invest more into recently acquired brands in H2 such that EBITDA margin guidance will remain at 10%. We expect market consensus EBITDA to move between £114m - £118m versus consensus of £109m today
Our coverage can be split into three cohorts. Firstly, those that are achieving structural growth, that have a continued positive outlook and have seen no forecast downgrades.
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The acquisition of the Karen Millen and Coast online businesses, plus associated IP rights, represents an interesting strategic development, with boohoo extending its reach into an older and more wealthy customer base. In the short-term, management plans to focus on consolidating its 7 brands ahead of peak trading, but with cash on the balance sheet, we see boohoo as well placed to make further acquisitions into new markets. Financials The brands were acquired from Kaupthing out of administration for £18.2m, funded by the Group’s existing cash resources (Q1 FY20 net cash: £194m). In its most recent financial year to February 2019, unaudited management information shows that direct online sales from the websites of Karen Millen and Coast totalled £28.4m (this figure excludes sales made on third party online platforms). We have no details on the profitability of the online operations, but assuming boohoo can achieve a 10% EBITDA margin on such sales (in line with group EBITDA), it has essentially acquired the online businesses from Karen Millen for 6.3 EV/EBITDA (ie: implying it could generate c. 15% ROI). Clearly, management will hope to use its platform to drive further sales. Brand profiles and proposed strategy Typically, Coast customers are 25 yrs+, while Karen Millen customers tend to be 30 yrs+, with the business operating at higher price points. The width of range for both brands online is small. For example, on the Karen Millen website, there are just 143 options for dresses. Management will look to focus on adding to the ranges using its Test & Repeat Strategy. In terms of pricing, we note that of the 143 dresses available on the Karen Millen website, the median price was > £100, with the Bestsellers often being over £150. Sourcing for both brands was previously c.50% from Europe and c.50% from Asia; management will attempt to source more from the UK The brands have a small footprint in International markets. 6% of sales were “Click & Collect”. Currently, the business has no stock commitments. The growth profile of the brands across both the High Street and online was previously flat, albeit faster in online Managment will focus on relaunching the brands’ websites onto the boohoo platform and installing ranges ready for peak trading in October. The brands currently have their own design functions, which management will not look to change.
Boohoo Group has announced the completion of the purchase of Karen Millen and Coast brands and related intellectual property, extending its offer into a new demographic and price point and cementing the Group’s status as a highly scalable, multi-branded fashion platform with the potential to be a leader in the e-commerce market globally.
ASOS Plc released a trading statement yesterday, with operational issues in both its European and US warehouses resulting in weaker than anticipated P3 performance and a downgrade to the outlook for the full year to 31 August 2019. The ASOS update serves to highlight the relative strengths of boohoo Group model, in our view, and reaffirms our belief that it deserves to trade at a premium to its peer. Boohoo has repeatedly proven its ability to invest ahead of growth and manage significant operational change with minimal disruption to trading. By owning all of its brands outright, boohoo also has full control of its own destiny. In addition, the diverging financial positions of the two companies is in stark contrast as boohoo continues to build its cash pile with £194m on its balance sheet, whilst ASOS has seen debt rise to c.1.0x EBITDA in a matter of months. We believe boohoo presents a compelling opportunity to invest in a fast-growing ecommerce business that is both profitable and cash generative. Trading on an FY20 PER of 44.3x, falling to 35.2x in FY21, we believe this rating is more than justified given the Group’s strong and consistent track record of profitable growth.
A recap of P1: boohoo reported solid numbers for P1 (3 months to 31st May), with the boohoo brand showing an acceleration in growth and PLT reporting solid growth, despite very tough comparatives (see Solid P1,12 June) Management later commented during the analyst call that P1 had been “very profitable” and boohoo had enjoyed its largest week ever, outside of Black Friday, when other peers were reporting softer trading. Further, trading in Q2 had so far been “very strong” despite good weather last year. Margin cushion building for Black Friday: Management said it believed the 70bps decline in margin it had expected this year (from higher distribution costs) had not materialised to date. The company also stated that it expected further margin benefits from automation of its warehouse operations in Burnley and further scale benefits at Sheffield. We estimate that 70bps of margin alone is equivalent to £8m of incremental profit. Rather than allowing such profit to fall to the bottom line, we believe management will deploy investment back into promotion – either through increased marketing or gross margin investment around Black Friday this year, underpinning top-line forecasts. De-rating: Since P1, the shares have de-rated amidst industry-wide concerns around clothing sales stagnating in late May and early June. Given the positive momentum boohoo reported just three weeks ago, we believe life has changed little since then. We also note that Primark reported (on Thursday) very good exit rates in June across both the UK and Europe. Not all is bad in the industry. Our view: We have long argued that margins are underpinned at boohoo and fears of PLT cannibalsaition are overdone (see Further to go and Underpinning a 10% EBITDA margin). Elsewhere, the momentum at Nasty Gal is eyecatching. The recent sell-off is overdone, in our view, and we suspect upgrades will come later in the year. BUY.
Group revenue is slightly ahead driven by strong growth across all brands, the UK and International. More targeted social media marketing has driven both new and existing customer traffic growth.
Boohoo Group has announced a solid start to FY20 in its Q1 trading statement released this morning. Revenue for the Group is up an impressive 39% YOY to £254.3m, ahead of ZC expectations (+32%) and market consensus (+35%), and against strong Q1 FY19 comparatives (+52%). There was growth across all brands and regions, with the Group continuing to take market share. This positive performance reflects the relevance and strength of the Group’s proposition, further evidenced by it topping the UK Hitwise rankings for the first time in May. Margin performance remains solid, with Group gross margin broadly stable YOY at 55.0% (Q1 FY19: 55.2%). The group was cash flow positive in the quarter with net cash on the balance sheet of £194m at the period end versus £191m at FY19 year end and £151m a year ago. Full year guidance is unchanged at this early stage of the year and we make no change to our forecasts this morning, although see upside risk to our numbers should the momentum seen in the initial three months of FY20 continue. We believe the boohoo Group offers an attractive opportunity to invest in a fast-growing ecommerce business that is both profitable and cash generative. Trading on an FY20 PER of 47.6x, falling to 37.9x in FY21, we believe this rating is justified given the Group’s strong and consistent track record of profitable growth.
Pure-play fast fashion retailer Boohoo delivered a strong Q1 trading update for the three months to 31st May 2019. The strong growth was seen across all three of the group’s brands and from all geographies. UK revenues grew 27% year-on-year (yoy) and international revenues advanced 56% with strong growth from the rest of Europe and the US. While the sales growth was a slight beat to both the full year guidance (25-30% growth in group revenues) and Q1 consensus revenue growth of 35%, the company outlined no change to the full year guidance and we are not changing our forecasts at this stage. We note the positive commentary from the company about their global opportunity to scale the multi-brand platform. In our view, the fair value of the company is 247p, and we continue to believe that the shares reflect the growth trajectory. We reiterate our HOLD rating.
The online space offers good value where an Intrinsic Value is now 1.2x EV vs. 0.5x in Jul-18. We highlight deep value at Zooplus.
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Boohoo Group plc has announced a solid set of results for the full year ended 28 February 2019, ahead of our forecasts which were revised higher in January. In recent years the boohoo group has transformed from a single branded e-commerce player into a scalable multi brand platform with proven ability to execute rapid growth. Its disruptive model, centred on a customer led proposition with strong social media engagement is enabling it to take market share from its competitors. The Group’s well-invested infrastructure is now capable of supporting revenue of up to £1.5bn with significant projects including the Sheffield warehouse relocation and Burnley automation delivered in on time, on budget and with minimal operational disruption. In the year ahead, we forecast the boohoo group to break through £1bn of revenue and generate more than £100m of EBITDA. It’s growth rates and profitability are at a premium to its listed peer Group whist its brandownership gives it, in our view, unmatched flexibility in its proposition. Operational cash conversion in excess of 100% translates to positive free cash flow despite record levels of investment meaning it ended the year with net cash of £190.7m on the balance sheet giving it substantial fire power with which to execute its next stage of growth.
Pureplay fast fashion brand Boohoo is due to announce its preliminary results on Wednesday 24th April 2019. We last heard from the company with its Q3 trading update back in mid-January, where we saw the guidance uplifted for revenue growth for FY2019F and a narrowing of the group adjusted EBITDA margins. We look for an update on the progress of all three brands and across all geographic regions, together with the first impressions from new CEO John Lyttle, who joined last month from Primark. We highlight the sizeable opportunity to further develop the international growth of the business. In our view, given the own-label focus in the company, we believe that structurally the group can attain a 10%+ EBITDA margin. In terms of valuation, boohoo trades on a forward one-year (year to end February 2020) PE multiple of 38.5x and an EV/EBITDA multiple of 22.7x. We continue to highlight the risk is on the potential upside and reiterate our BUY rating.
The chasm between winners and losers is widening. While this was expected, the scale of the ongoing structural changes is mired by the multiple excuses that have become far too common.
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The boohoo Group 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 mediumterm 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.
Boohoo group continues to outperform, delivering another set of excellent results today. Management has upgraded sales growth guidance range for FY19E (Feb y/e) to 43-45% (from 38-43% previously). This has been driven by an outperformance at PLT and continued momentum at Boohoo and Nasty Gal, in line with H1. Improved effectiveness and timing of promotional activity has supposedly driven higher gross margins and this has resulted in an expected c.£190m of cash at year-end. We understand the group’s own channels alongside wholesale, which remains low single digit percentage of the mix, have performed in similar vein suggesting broad resonance of brand strength across all channels. The share price has de-rated undeservedly of late (from 100% to 35% of its peak/trough 12m fwd PE rating in the last 18 months), in our view, presenting an opportunity to pick up the shares alot cheaper.
Boohoo has released a short trading statement this morning confirming that trading to date remains strong, with record Black Friday sales seen across the group. The group continues to trade “comfortably” in line with market expectations and we leave our forecasts unchanged this morning having upgraded our numbers at the interim results on 26th of September. Boohoo is a well invested business with significant capacity for ongoing growth. It is backed by a strong balance sheet with net cash of £164m at interim results. At current levels, boohoo trades on an FY19 P/E of 40.8x falling to 33.5x in FY20 which looks undemanding versus its peers given a 2-year forecast Sales CAGR of 33.1% alongside an EBITDA margin of 9.5%.
Boohoo has announced another robust performance for the six months ended 31 August 2018, delivering impressive growth with profitability in line with guidance. Revenue of £395.3m is +50.4% YOY with the group achieving market share gains across its key focus territories and brands; boohoo (+14.9%), PrettyLittleThing (+132.0%) and Nasty Gal (+111.4%). The impressive top line growth delivered in the period combined with the group’s operational leverage and the benefit of its multi-brand model is reflected in the solid 200bps uplift in group gross margin to 55.3%. Adj. EBITDA of £39.6m is +42.6% YOY translating to Adj. diluted EPS of 1.39p (H1 FY18: 1.22p). Full year revenue guidance has moved higher today with growth of 38-43% now forecast (previously 35-40%), reflected in an upgrade to our forecasts. Following the acquisition of PLT and Nasty Gal, the boohoo Group consists of three fast-growing, vertically integrated brands enabling the group to generate levels of profitability well ahead of its peers. Trading on FY19 PER of 49.3x falling to 40.4x in FY20 its value looks undemanding versus its peers.
Interim results have achieved EBITDA of c.5% ahead of expectations at £39.6m (+43% YoY). This has been driven by a revenue beat (+50% group growth vs. consensus +46%) and a group gross margin beat of 170bps at 55.3%, reflecting stronger sell through, stock control and an improved customer proposition, despite obvious challenges from the PLT warehouse move. While FY19E revenue guidance has been raised from 35%-40% to 38%-43%, and adjusted EBITDA margin has been held at 9% to 10%, we don’t expect any material change in forecasts today. Operational progress has been encouraging (PLT warehouse move complete, Burnley automation on track) which should help support future growth alongside the recent appointment of a credible CEO. PLT has become a material part of the group in very short order (acq. Dec 2016), accounting for 60% of group revenue growth and 43% of sales in the half. With the outlook very promising, we note the potential liability outstanding on the remaining portion of PLT. BUY
boohoo.com (BOO LN) Lead indicators at PLT suggest strong growth ahead - Buy | Fulcrum Utility Services Limited (FCRM LN) Solid H1 performance with guidance reiterated | Futura Medical (FUM LN) H1’s highlight focus on MED2002: funding options being explored | NCC Group (NCC LN) Solid start to the year | RhythmOne (RTHM LN) Trimming numbers, but profits are leaping | Trifast (TRI LN) Solid growth, trading in line with FY19 expectations | Vectura Group (VEC LN) More conservative stance on flutiform®, but significant upside remains
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boohoo Group has this morning announced the appointment of John Lyttle as Group CEO (effective 15th March 2019) and the re-alignment of its wider executive board as it positions itself for the next stage of growth. John is currently the COO of Primark, one of Europe’s fastest growing and most profitable retail businesses, a role he has been in for eight years. His appointment brings complementary operational experience to boohoo’s senior management team as it focuses on rolling out the infrastructure and technology needed to realise its ambitions of reaching £3bn in annual sales. Joint co-founders Mahmud Kamani and Carol Kane will remain close to the businesses, moving to Group Executive Chairman and Group Co-Founder and Executive Director respectively, with a focus on driving the longer-term strategy and creative vision for the enlarged Group. Current Non-executive Chairman Peter Williams will step down from his role next March with a replacement NED role to be announced in due course. Interim Results will be announced on 26th September, and the shares trade on 44.3x FY19 PE based on Friday’s close.
The appointment of a new CEO, accompanied with a board reshuffle, is a positive in the laying down of foundations to support future growth. This news should not be seen as an upheaval as Mahmud Kamani will lead the strategic direction of the group, while CEO designate John Lyttle will take care of the day to day operations. Carol Kane will continue to drive the creative direction of the brands. More importantly, the CEO designate is a known figure, limiting any cultural mismatches. However, his remuneration package should be read as a key signal of confidence in achieving a 5-year 23% CAGR in earnings. The shares have continued to be weak, which we think is wrong, with expectations unchanged of 35-40% revenue growth. Our proprietary online valuation framework suggests an Intrinsic Value for the group that stands at 1.1x its current Enterprise Value and we maintain our BUY recommendation and TP of 240p.
boohoo.com (BOO LN) Exciting forward growth prospects + reducing execution risk
Sales grew 53% in Q1 despite slower Boohoo growth, and gross margin smashed consensus expectations. This increases flexibility to reinvest and drive future growth and upgrades. Boohoo’s growth should pick up via overseas expansion, improved customer frequency and easier comps. We have raised FY19 EPS by 4% but growth assumptions in H2 and outer years still look prudent. To reflect confidence in the growth and future profit dynamics we lift our target price to 250p (225p). If PLT’s DC move is executed well, and Boohoo growth rebuilds back to c20%, we would expect the share price to test new highs. Interims in September will better inform us on these dynamics. Sustainable growth, attractive EBITDA margins and strong cashflow, helped by a sector-leading working capital surplus, means we stay at BUY.
boohoo.com (BOO LN) Profit dynamics bolstered by gross margin strength | Eckoh (ECK LN) Business looking strong for FY’19… despite IFRS 15 | Futura Medical (FUM LN) AGM: MED2002/Eroxon® Phase III recruitment on track for Sept. 2018 | Microsaic Systems (MSYS LN) Distribution agreement with Omicron Research Ltd
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boohoo.com has delivered solid Q1 Group revenue growth of 53% to £183.6m, with standout like-for-like growth of 158% delivered by PLT. At a Group level, the UK saw strong growth of 49%, while international sales were up 60%. Group gross margins increased 100bps to 55.2%, reversing the downward trend seen over the last few years, driven by strong full-price sales performance in PLT. The boohoo brand delivered growth of 12%, however we flag this is versus a tough comp of 48% growth in Q118, with increased sales and promotional activity early in the quarter causing a reduction in gross margin to 52.0% from 53.9%. Promotional activity has since slowed, and the GM exit rate actually was up YoY, giving scope for the business to implement growth measures which should boost growth rates as the comps get easier.
Q1 revenue has come in ahead of expectations driven by strong growth across all brands, the UK and International. Guidance is unchanged with 35%-40% revenue growth and a 9%-10% EBITDA margin expected for FY19E. Operational progress is on track with infrastructure investment laying the platform for a more than tripling of sales over the medium-term. Our proprietary online valuation framework suggests an Intrinsic Value for the group that stands at 0.4x its current Enterprise Value. At this stage, while we acknowledge the ongoing positive momentum, we believe the shares are up with events and move to HOLD on an unchanged target price of 220p.
boohoo.com (BOO LN) Strong sales growth + margin uplifts highlight strength of business | Brewin Dolphin Holdings (BRW LN) Markets recover but Q2 prompts 5% EPS reduction | iomart Group (IOM LN) Another solid year, more of the same expected | Oxford Instruments (OXIG LN) Prelims slightly ahead of expectations | Trifast (TRI LN) Another good year; start of Project Atlas
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Results for Feb18 smashed expectations and guidance was universally positive, leading to upgrades of >10% as we hoped. While the shares have responded (+23%, 4 weeks), the valuation does not yet adequately capture the high growth and profit dynamics in BOO’s brands. Our detailed analysis of mix, scale economies, and automation savings supports a c10% blended EBITDA margin medium term, albeit not assumed in upgraded forecasts. Sales guidance looks conservative too and, after a “strong start” to FY19, we are optimistic about the upcoming Q1 next month noting forecasts still only asssume PLT/NG growth of 77% (vs >200% in H2 ended Feb).
boohoo.com has announced results for the year ended February 2018, with Group performance coming in ahead of ZC estimates. Revenue of £579.8m is up 97% YoY (92% CER) and 3.4% ahead of estimates with growth across all geographies and contribution from new brands PrettyLittleThing and Nasty Gal. Gross margin is down 180bps as a result of increased promotional activity that has helped to deliver top line growth. Adj. EBITDA of £56.9m, +60% YoY, a 7.0% beat on forecasts with adj. PBT also +60% to £51.0m. This results in adj. EPS of 3.23p, +47% YoY. The Group finished the year with a very strong net cash position of £133.0m, boosted by proceeds from June’s share placing and robust cash flow generation.
Boohoo has announced strong results today, which are well ahead of consensus expectations. Revenues have grown 97% in the year, and EBITDA of £56.9m is some 6% ahead. Net cash has finished materially ahead. The year has started well with strong top line momentum maintained. The group is growing rapidly from a low-base and while some may call into question its relatively high churn rates, the company’s high Customer Life Time Value : Customer Acquisition Cost spread signals a strong efficiency of marketing spend. Reiterate BUY.
Given execution & capacity risk has diminished, a 30% de-rating means the market is discounting higher growth and profit from the 3 brands, and future warehouse savings. Many headwinds faced by offline UK retailers are also Boohoo opportunities, namely the online shift and a promotional market, where it excels. The brands are at different life cycle stages; so near term mix dilutes EBITDA % but, over time, EBITDA growth should exceed sales growth. The market appears to have adjusted badly to the mix dynamics of having high growth/immature brands, Pretty Little Thing (PLT)/Nasty Gal (NG), and undervalues the group as a result. Buy for growth and outperformance.
boohoo.com (BOO LN) Buy into derating as brand momentum increases | Carador Income Fund (CIFU LN) Q4 dividend of 2.25c, total of 9c for full year | ECO Animal Health Group (EAH LN) Marketing authorisations for Aivlosin® in Ukraine | Elementis (ELM LN) Strategic progress not yet reflected in share price | Goals Soccer Centres (GOAL LN) 2017 falls short of expectations but turnaround green-shoots in evidence
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boohoo has traded strongly across all regions in the four months to 31 December, including the key Black Friday and Christmas periods, delivering headline group sales growth of 100% (93% CER), or £228m. boohoo delivered sales of £142.6m, up 25% (21% CER) against a strong prior year comp of 55%, while PLT continues to deliver standout growth of 191%, or £73.8m. As a result, the UK, RoE and USA geographies all delivered triple digit growth of 107%, 102% and 105% respectively, with the RoW also delivering solid YoY growth of 59%. Nasty Gal continues to grow impressively month-on-month from start up in March 2017, contributing £11.9m in revenue, bringing total year-to-date revenue to £20.2m. As a result of strong trading over the period, management have again increased FY18 sales growth guidance for the group to c.90%, against previous guidance of 80%, whilst narrowing the EBITDA margin to be between 9.25% and 9.75% versus 9% to 10% previously. This drives modest upgrades of c.5%-6% to our numbers in FY18 as shown below. Our FY19 numbers remain unchanged for now pending further guidance post the year end.
For investors wondering where all the shoppers have been, they have probably been shopping online at Boohoo... and will be logging in again this weekend after the UKs fashion press, bloggers, vloggers and influencers give what will inevitably be a lot of positive commentary to spring/summer lines showcased at its fashion event yesterday. Boohoo, Nasty Gal and Boohoo Man were represented and of particular interest according to feedback at the event were Premium, Curve, Menswear and athleisure lines across brands. The mood of the team was very upbeat and their continuing focus on capacity solutions means risk there is being managed. After the recent 30% correction there is scope for shares to rebound. We move back to buy.
boohoo continues to exceed expectations, delivering H1 group revenue growth of 106% to £262.9m, with boohoo brand up 43% YoY (40% CER) and PLT delivering standout growth of 289%. The group continues to increase market share overseas. Growth in the USA was 160% (145% CER), and now represents 15% of total group sales, the largest market outside the UK. Rest of Europe saw growth of 89% (77% CER) while RoW grew 105% (89% CER). Sales in the UK doubled to £163.4m, representing 62% of total group sales, a reduction from 64% YoY. Nasty Gal is also growing strongly month-on-month and contributed £8.4m in revenue. We expect the business to continue to make significant investment in technology and infrastructure as well as the customer proposition and continue to drive long-term, profitable growth across all the brands. In-line with revised guidance, we upgrade our FY18 and FY19 revenue and EBITDA forecasts.
The interim results confirm another excellent half year for Boohoo, with EBITDA growth of 68% including only a modest contribution from PLT where growth rates remain very compelling and where FY guidance has been raised to +150%. Overall group sales guidance has been raised to +80% for FY18, which compares to our forecast of +75% (and similar for consensus). Note that overly conservative guidance of +60% had largely been ignored. Due to further reinvestment, though, and greater participation from PLT (lower profitability), the higher sales forecast may not yield upgrades today, or at the very most 5%. Pending further clarity on this and insight into important platform and warehousing changes we make no alterations to our target price and maintain a hold recommendation.
Ahead of the H1FY18 results on Wednesday 27 September 2017, given that investor focus is likely to continue to be on the recent run-rate and full year revenue guidance, we see significant upside to what we consider as conservative FY18 revenue guidance and market consensus, which both fall some way short of the current trading momentum in the business, in our view. We use this note to update our stale forecasts to reflect the combined effects of the Nasty Gal acquisition, FY17 results, the £50m fund raising for additional warehouse capacity, and Q1FY18 trading update. Our new TP is 290p.
boohoo continues to exceed expectations, delivering Q1 group revenue growth of some 106% to £120.1m, with standout like-for-like revenue growth of 78%. Significantly, the group has also announced plans to construct a brand new automated ‘super-site’ that will provide boohoo with an additional £2bn of net sales capacity. The c.£150m of capex required will be invested over the next three years and will be funded by a £50m equity placing alongside cash generated by the business. In our view, the £50m fund raise and continued outperformance gives boohoo enormous flexibility to grow, and when combined with the existing Burnley site, will bring group sales capacity towards £3bn, a serious statement of intent. Alongside today’s new equity placing, 3.25% of the total share capital is also being placed from existing shareholders, equating to c.£80m. We note that the sellers will be subject to a six month hard and six month soft lock up period.
Today’s figures are clear evidence of both Boohoo’s successful business model and growth strategy, with PBT/EPS doubling in FY17, c2% better than forecast. The balance sheet remains strong with unchanged net cash of £58m despite the acquisition and increased capex spend. Guidance today signals sales/EBITDA growth in FY18 in line with our current forecasts, with higher Pretty Little Thing growth expected (both sales and EBITDA) offset by more modest Nasty Gal growth. Management has taken a lot on with the opportunistic acquisition of the latter, so we are relieved that guidance is prudent as they manage any execution risk and establish the platform for future growth. A lot of the recent re-rating has been well justified but we wonder if the market was hoping for a sizeable upgrade today.
A year of upgrades has been topped by yet another sales and earnings beat. Full year sales of £295m are up 51%, with growth accelerating across all regions in H2. This impressive top line performance converted to a 90% increase in EBITDA to £35.6m and a 97% increase in PBT to £30.9m, driven by overhead efficiencies as the group grows. The complementary acquisitions of PrettyLittleThing and the Nasty Gal brand transform the business into a multi-branded proposition. This, alongside investment in range extension and impressive international expansion, underpins our expectations for continued strong growth of at least 50% top line throughout 2017. Active customers have risen 29% to 5.2m, with solid improvement continuing across all KPIs. Despite significant capital investment, totalling £30.7m in the year, boohoo’s balance sheet remains robust with net cash of £58.4m at the year end. We upgrade our FY18 expectations by c.12% and continue to see potential for significant profitable growth going forwards.
boohoo has continued to trade strongly in the final two months of the year to February. As a result management are increasing FY17 guidance at the sales and EBITDA levels in this morning’s pre-close trading update. Headline sales growth is now expected to be c.50%, ahead of the previously guided range of 46% to 48% given on 10th January. This results in a 1.5% increase in revenue forecasts. The EBITDA margin is now expected to be at the top of the previously guided range of 11% to 12% as the business benefits from operating leverage. This drives a 5.2% upgrade to our estimate. Further guidance on FY18 will be given at the FY17 results on 26th April. We also note that the Nasty Gal acquisition is expected to complete today as per the RNS on 9th February.
boohoo has traded strongly across all regions in the four months to 31 December, including the Black Friday weekend and key peak season Christmas period. Headline sales growth was 55% (52% CER), with the USA delivering standout growth of 230% (188% CER) to £19.6m. UK growth at 31% is in line with previous quarters adjusting for the wholesale business (annualising the start of this business). As a result, management have increased FY17 guidance for boohoo sales growth to between 43% and 45%, against previous guidance of between 38% and 42%. Overall group revenue growth, including the two month contribution of PLT, is expected to be 46% to 48% with group EBITDA margin between 11% and 12%. The continued investment in price and promotions, the broadening product range (e.g. launch of kids wear) and success of the boohoo brand at offering the latest fashion trends, continues to drive significant improvements in customer loyalty and lifetime value. All of this is reflected in the continued impressive increase in active customers of 31% YoY to 5.1m. Since the period end, the PLT acquisition has completed and there remains the proposed acquisition of Nasty Gal in the US which will be governed by a court-approved bidding process, expected to complete in February.
Boohoo has a released another trading update this morning which exceeds market expectations. Revenue for the four months to 31st December is +55% to £114.3m (PGE: £110.5m, +50%) with strong growth generated across all regions. Guidance has been increased yet again and the company now expects revenue growth for boohoo.com to be between 43% and 45% for the full year.
boohoo has continued to trade strongly since the interim results on 27th September 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.
Boohoo has released an unexpected trading update this morning which upgrades guidance and announces the acquisition of PrettyLittleThing. The company is clearly operating in a retail sweet spot and its high quality management team are demonstrating exceptional execution. We reiterate our buy recommendation on the shares and increase our PT from 114p to 170p.
Trading continues to go from strength to strength as boohoo 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 boohoo 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.
Boohoo has reported a fantastic set of interims for the six months to 31st August with revenues increasing by 40% to c£127m and underlying EBITDA increasing by 117% to c£16.5m. This strong operational performance was underpinned by a remarkable set of KPIs which highlight the ability of the management team and the benefits of investing in technology and talent. We believe that the shares will benefit from earnings momentum going forward and therefore upgrade our recommendation from Hold to Buy.
Trading since the Q1 update in June has continued to be strong, ahead of expectations, and as a result management are increasing full year guidance in terms of both sales and EBITDA margin. We are revising our sales growth to 30% (versus 27.5%) for the full year, in-line with increased guidance of 28- 33%, and as a result of increased operating leverage coming through in the business, an improved EBITDA margin is anticipated. Although no specific guidance is provided today regarding this, we see EBITDA margins rising materially by 90bps to 10.5% for the full year (versus 9.6% prior). This drives an upgrade to FY17 EBITDA forecasts of 11.1% and of 13.1% at the PBT and EPS level. No changes to FY18 for the moment. Further guidance will be provided at the interims due next month on 27 September.
Prior to the EU vote, fears of Brexit undermined consumer confidence and spending patterns, and sterling weakened against the US$ and the €. Wider fears for employment, consumer spending and economic slow-down had hit Retail stocks significantly (-10% rel. YTD). Friday’s surprise Brexit vote has impacted Sterling again and will further knock confidence and spending too. The sector came under material further pressure as a result, falling 10% on the day vs the Allshare’s 3%. As noted on Friday, there are 4 stocks in our universe where forecasts are favourably exposed to FX upside risk (BCA, Boohoo, Swallowfield, Walker Greenbank), 5 stocks which we have downgraded (Debenhams, Findel, Halfords, N Brown, Howden Joinery) with the remainder left unchanged including Motor Retailers.
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boohoo reports headline revenue growth for the three months to 31 May of 41% (42% CER) YoY, delivering Q1 sales of £58.2m. Growth continues to be powered by the UK, which delivered 42% growth, albeit this is somewhat flattered by the impact of third party sales, which are recognised as part of UK sales (we estimate UK growth excluding third party sales to be c.31%). boohoo continues to gather momentum in international markets, with growth reported in Rest of World at 37% (40% CER), while Rest of Europe grew at 40% (43% CER). Overall gross margin of 56% is in-line with our FY assumptions, while KPIs continue to improve with active customers increasing 30% on the prior year to 4.2m, and up from 4.0m at the year end.
Growth in Q1 of 41% is ahead of expectations and well ahead of the previous FY guidance of 25%, which has today been raised to 25-30% and which could also prove overly prudent. Testimony to the improved digital and operational capabilities, KPIs have all trended up - including average order values (a positive surprise). Critically, full price sales also increased. Whilst Retail gross margin is lower than anticipated, part of this is FX related and will reverse. Furthermore, continued marketing efficiencies and cost leverage means profitability has improved. We conclude from this performance that Boohoo’s online/data science capabilities are visibly showing through at a time when the channel shift has re-accelerated. With an upgrade of 3.5% and continuing risk to the upside we lift our TP to 63p. Buy.
In response to strong top line growth and consistent delivery vs. profit expectations the shares have recovered over the last year back to the IPO price. Boohoo has established real momentum with its target customers, both in the UK and internationally, and there has been a step-up in operational capabilities. Confidence in future growth is therefore at a new high. We forecast a 3-year EPS CAGR of 21% but indicate this could be 25-30% via Pretty Little Thing (PLT) accretion and/or organic outperformance. Increasing warehouse capacity to £800m sales (£70m funded by c/flow) gives a sense of the longer term opportunity and management ambition. Buy.
boohoo.com beat revenue and earnings expectations for FY15. Guidance for FY16 also appears beatable. Indeed, we see potential for it to grow profits substantially in all of its main territories for the foreseeable future. It has the financial resources to fund that growth internally. These factors underpin the premium P/E rating.
The strong momentum we saw from Boohoo through 3P2016 continued through the final two months of the financial year and has led to the company exceeding revised guidance for FY2016. The company is clearly trading well, evidenced by a 44% increase in the number of orders and a 34% increase in active customers’ year-on-year, but the valuation of the stock is too demanding, in our view. We therefore retain our HOLD recommendation on the shares but increase our TP from 35p to 41p.
boohoo reports headline revenue growth for the full year to 29 February 2016 of 40% (42% CER) YoY, delivering sales of £195.4m. Following on from the upgrades in January, this is 3.2% ahead of our expectations of 35% growth or £189.2m. Full year EBITDA of £18.7m is also ahead of our £17.9m forecast, with EBITDA margin slightly ahead at 9.6% (9.5%). Growth continues to be powered by the UK, which delivered 38% full year growth. Strong growth has been reported in Rest of World at 56% (63% CER), while Rest of Europe grew solidly at 25% (35% CER), with 31% growth reported in H2. We are upgrading our FY17 sales estimates by 3.2% to £240.3m (£232.8m), implying 23% YoY growth (conservatively below 25% guidance) and FY18 by 3.2% to £288.4m (£279.4m), implying growth of 20%. We also upgrade our EBITDA forecasts, to £23.1m (£22.1m) and £28.6m (£27.1m) for FY17 and FY18 respectively. EBITDA margin is forecast to remain flat in FY17 at 9.6% and increase only by 30 bps in FY18 to 9.9% (9.7%), as we expect boohoo to continue to reinvest in growth and the customer proposition in order to maintain momentum and continue to take market share.
Prelims are c5% ahead of expectations after a strong end to the year, especially in the UK (+46%) which was the driver of the beat. Much like a year ago, guidance for FY17 is conservative meaning forecasts will not be changing today. However, via strategic enhancements across the business, especially to the product and service offering, and helped by price reinvestment, Boohoo has established strong momentum in its target markets and KPIs provide confidence in future growth. The shares have done well ahead of the figures but, on 17x cal17 EV/EBITDA and with potential for numbers to advance (organically and/or via option exercise) they continue to offer upside. Buy, target lifted to 56p.
BOOHOO.COM PLC (BOO LN) FY16 beat expectations, good start to FY17, and long term potential | FISHER(JAMES)& SONS PLC (FSJ LN) Contract win confirms increasing nuclear profile | HORIZON DISCOVERY GROUP PLC (HZD LN) FY results in line with expectations
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Boohoo releases prelims on 26 April. Sales momentum was strong when it last reported and we expect this to have continued. Confidence in these upcoming results (N+1E £15.0m PBT) is therefore high, albeit a material beat is unlikely given guidance to reinvest. We also have confidence in the growth plans given a clear focus on the customer experience, product (range extension) and price points. There is scope for positive newsflow on expanding brand sales via 3rd parties (new profit stream), DC investment (efficiencies), exercise of options (acquisition accretion) and operational leverage. We have therefore upgraded our target price to 50p (the IPO price). Buy.
Boohoo.com (BOO LN) Results preview – target price raised to 50p – re-iterate Buy | easyHotel (EZH LN) H1 trading ahead of expectations | Grainger (GRI LN) Disposal of last major tranche of German assets | Halfords Group (HFD LN) Solid Q4 ends tricky year with good momentum and initiatives for FY17 | Midatech Pharma (MTPH LN) FY results in line; Phase II insulin data remains expected in Q2 | Walker Greenbank (WGB LN) Near term disruption covered and strategic growth plans continue
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boohoo reports headline revenue growth in the four months to 31 December 2015 of 45% (49% CER) YoY, ahead of our expectations of 35%, driven by impressive 45% growth in the UK. Rest of Europe grew 33% (44% CER), an improvement from 19% delivered in H1 (34% CER), while strong growth was yet again reported in Rest of World at 52% (63% CER). As a result we are upgrading our FY16 sales estimates by 2.3% to £189.2m (£185.0m) and FY17 by 4.8% to £232.8m (£222.1m). We maintain our EBITDA forecasts of £17.9m and £22.1m for FY16 and FY17 respectively, or 9.5% margin, as we expect boohoo to continue to reinvest in growth and the customer proposition in order to maintain momentum and continue to take market share.
Today’s RNS confirms management has made measurable advances in key parts of the business, with sales growth significantly exceeding our forecast assumption. CER growth was almost 50% in the 4 months despite the volatile conditions; and Boohoo looks well placed to keep on targeting the ongoing shift to online and towards value fast fashion. Given its reinvestment objective back into price, it is on track to deliver FY expectations rather than a beat but, with Retail and also 3rd party sales gaining momentum, confidence in forecasts and the long term potential should get a boost today. We lift our 12m target price by to 44p (+10%) now using cal’17 target metrics (15x EV/EBITDA). Buy.
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With Boohoo shares trading at a premium to what we believe is their fundamental worth, we have decided to downgrade our recommendation on the stock from Buy to Hold ahead of Tuesday's Trading Statement. A particularly challenging trading environment, characterised by unseasonal weather conditions, distorted trading patterns and unprecedented levels of discounting makes the prospect of upgrades incredibly unlikely. The shares have demonstrated resilience in a downward trending market recently and they now appear appropriately placed against the peer group. Our cash flow analysis shows the intrinsic value of the stock to be circa 35p per share.
Boohoo reports headline Q2 16 revenue growth of 35% (40% CER) YoY, delivering total H1 revenue growth of 35% (39% CER). Following on from 27% sales growth reported for Q1, the UK has continued to perform strongly with 32% top-line growth in Q2, delivering H1 growth, ahead of our expectations, of 30%. Rest of Europe grew 13% in Q2 (26% CER), delivering 19% growth for the half (34% CER), while strong growth was yet again reported in Rest of World of 64% (81% CER) giving impressive H1 growth of 65% (75% CER). At the time of Q1 reporting we remained cautious on the full-year outlook flagging the tough comparatives going into Q2 (37%, 41% CER). However, as a result of strong Q2 performance, and in-line with company guidance, we are upgrading our FY16 forecasts by 5.6% on the top-line to £185.0m and EBITDA by 2.1% to £17.9m. We also upgrade our forecasts for FY17, with sales +5.6% to £222.1m and EBITDA +5.4% to £22.1m.
H1 results confirm management has made advances in all parts of the business, with sales growth accelerating to levels ahead of both internal and market forecasts in Q2 despite a much tougher comp. This has continued into Q3. Full year sales guidance has been upgraded as a result, and the surplus re-invested. As noted in prior research, Wholesale is progressing well and there could be substantial value in its PLT option. Our confidence in forecasts and value upside therefore continues to build. Improved sentiment towards the stock should aid further re-rating. Buy.
Recently witnessed turmoil in global markets has coincided with the end of Boohoo’s Q2 period. Although no formal update is anticipated, we believe investors should take note of a continuation of growth trends despite tougher comps and FX headwinds, providing further confirmation its strategy is back on track. We have upgraded full year sales by £5m as a result. Ordinarily this would wash through to a c5% upgrade but it is management’s stated intention to reinvest back into future growth given the size of the opportunity. With a new Wholesale channel developing too, confidence in numbers is growing. Neither this, surplus cash on the balance sheet or the potential value in its PrettyLittleThing option are being factored into valuation. We have upgraded our target price by another 14%. Buy.
Boohoo reports headline Q1 revenue growth of 35% (37% CER), versus 24% (30% CER) YoY growth in Q1 15. The UK is back on track with 27% sales growth, Rest of Europe also grew 27% (45% CER) while strong growth was yet again reported in Rest of World of 66% (70% CER). Although performance in Q1 has been strong and ahead of market expectations, we are not extrapolating the growth trajectory from Q1 into the rest of the year and note tougher comparatives going into Q2 (37%, 41% CER). We are therefore maintaining our full year forecasts, which look increasingly underpinned, for sales and profitability.
With evidence of enhanced capabilities and disciplines in key areas of the business compared to last year, including in mobile, we believe Boohoo is already overdue some recovery in its rating since the January warning. Today’s trading update is the first key milestone for investors, providing significant reassurance and confirmation that the growth strategy is back on track, and that forecast assumptions look deliverable, and may even allow for some additional customer recruitment. Trading on 13x EV/EBITDA falling to 9x next year the shares are a BUY.
Boohoo.com (BOO LN) Growth strategy back on track - business tracking ahead of forecast | Dialight (DIA LN) Lighting order slowdown – reduced management expectations
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Boohoo will release its Q1 update (3 months ended May) on 10th June. After the well documented issues that impacted forecasts in H2 FY15, this is an important trading update. We expect it to 1) reassure investors the growth strategy is back on track, and 2) set the tone for the rest of the year. Helped by a number of company specific enhancements (covering products, pricing, technology etc) we anticipate Q1 growth being in line with, or slightly ahead of, our full year assumption (N+1E +25%). As confidence is restored, the shares should have scope for significant re-rating vs today’s discounted valuation of 14x cal15 EV/EBITDA (10x cal16) and we therefore re-iterate our Buy stance.
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