- Full-year results low-end
- Margins seen improving
- Positive trends in core brands
Online fast fashion seller Boohoo’s (BOO:AIM) adjusted pre-tax losses widened by 30% to £31 million in the year to February 2024 as sales continued to plunge amid weak consumer demand and cut-throat competition.
The Manchester-based clothing and beauty purveyor also reported a 7% drop in adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) to £58.6 million.
That was towards the bottom end of the £58 million to £70 million guidance range and below the previous year’s £63.3 million figure, sending the shares 3.7% lower to 34p on Wednesday.
However, green shoots are appearing at indebted Boohoo with the performance of core brands including the eponymous label, PrettyLittleThing and Debenhams picking up in the second half.
Margins are also improving thanks to Boohoo’s focus on more profitable sales and the benefits of ongoing cost-saving programmes.
UNDER PRESSURE
Group revenue fell 17% to £1.5 billion last year amid persistently challenging market conditions including fierce competition from Shein and the post-pandemic normalisation of online shopping, not to mention management’s focus on more profitable sales. UK revenue declined 16% to £921.5 million, while US revenues were down 18%.
Management noted an improvement in sales momentum between the first and second halves, and having opened its new US distribution centre and completed its automation project in Sheffield Boohoo believes it is well-positioned having invested for sustainable and profitable growth.
With greater cost savings and lower capex having completed these two projects, management is confident of achieving its medium-term EBITDA margin target of 6%-8% and expects the business to be free cash flow positive in the current financial year.
WHAT DID THE CEO SAY?
Chief executive John Lyttle said: ‘Despite difficult market conditions caused by high levels of inflation and weakened consumer demand, we made continued progress in the year. I am particularly encouraged with the ongoing trend of improved performance in our core brands which saw GMV (gross merchandise value) down 9% in H124 and down just 4% in H224 demonstrating increasing momentum and validating our strategy to focus on these brands which are much loved by our customer base.’
AJ Bell investment director Russ Mould pointed out Boohoo’s balance sheet is showing some signs of strain amid restructuring costs, so cash generation is key.
‘Capital expenditure is coming down as the company completes on its Sheffield automation centre and US distribution hub which should help, and Boohoo has reaffirmed its medium-term margin target,’ said Mould.
‘The company’s progress is somewhat hidden behind some weak headline numbers and this work will mean little if demand does not improve. The disposable nature of some of its products is at odds with a commitment to green issues, which appears to be particularly important to its core demographic of teenagers and young adults.’
Mould added: ‘The UK competition authorities are watching the business closely after a recent investigation into ‘greenwashing’ so Boohoo can’t afford to massage the truth about its supply chain and environmental impact.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
