Shares in Manchester-based online fashion retail platform Boohoo (BOO:AIM) dropped as much as 17% to a 12-month low of 212p in initial dealing, after the firm’s interim results fell short of market expectations, although an hour into the trading day they had stabilized down 11% at 228p.
GLUM SECOND QUARTER
After posting a strong trading update for the first quarter to May, with sales growing by an impressive 32%, above consensus forecasts, second quarter sales growth was a skimpy 9%, well below market estimates.
The firm blamed an increase in UK return rates to pre-pandemic levels, greater competition from the reopening of physical stores, ‘consumer uncertainty’ resulting in the loss of key events and holidays and supply chain disruption which impacted its international deliveries.
While the firm didn’t split out its quarterly operating performance, earnings before interest, taxes, depreciation and amortization (EBITDA) for the six months to August were 5% lower than a year ago which suggests a substantial drop in the latest three-month period.
The company cited a number of cost headwinds as it attempts to scale newly-acquired brands, including higher marketing spend, operational costs of moving warehouses, wage increases and ‘materially higher’ shipping costs.
BRIGHTER OUTLOOK
Boohoo did suggest consumption trends had improved in August, both in the UK and Europe, and that this uptick had continued into September with sales growth accelerating from the second quarter’s levels.
Second half sales are expected to grow by between 20% and 30%, compared with an average of 20% for the first half, while cost headwinds are expected to continue through the full year meaning EBITDA margins are likely to be between 9% and 9.5% and not in the 9.5% to 10% range as forecast at the end of the first quarter.
On the plus side, first half revenues were still a company record and the firm has doubled its market share in the UK and the US in the last two years, making it a formidable competitor in a market of up to 500 million potential customers.
EXPERT VIEW
Analyst Eleonora Dani at Shore Capital called the weaker than expected first half EBITDA performance and the halving of Boohoo’s net cash position ‘disappointing’, and warned that consensus estimates for full year sales growth would need to be revised down sharply.
However, that said, on a price to earnings growth or PEG valuation basis the shares are now trading at just 0.7 times, a 70% discount to rival ASOS (ASC:AIM), flags Dani. ‘This is despite Boohoo’s higher earnings potential derived from a multi-brand proposition and the transformative Debenhams acquisition,’ she noted.
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