Online affordable fashion retailer Boohoo.com’s (BOO:AIM) half year results reveal continuing stellar growth rates at home and overseas, with the company raising full year sales growth guidance for the second time in four months.
Yet the high-flying, highly-rated shares fall back by 8.5% to 236.75p on profit-taking, as Boohoo reveals investment costs will crimp margins.
UPGRADING GUIDANCE (YET AGAIN)
Results for the half to August from the multi-brand online retailer are nothing short of superb, showing sales shooting up 106% to £262.9m and a better-than-expected 41% taxable profits leap to £20.3m.
The core Boohoo fast fashion brand is increasingly in vogue with youthful, social media-savvy shoppers seeking a bargain around the globe.
And given the strong momentum behind the business and management’s confidence entering the second half, Manchester-based Boohoo raises full year sales growth guidance to ‘around 80%’, up from previous guidance of circa 60%.
Zeus Capital upgrades its year to February 2018 top-line estimate by 12.3% to £530.5m, implying 80.1% year-on-year growth and a surge in adjusted profit before tax to £45.8m (2017: £31.4m).
MARGIN INVESTMENT
However, group adjusted EBITDA margins are now expected to come in at between 9% and 10%, below the consensus estimate of 10.3%.
This reflects reinvestment in price, promotions and marketing and specifically, the costs of developing the newly acquired, rapidly growing PrettyLittleThing and Nasty Gal brands.
Overseas demand for PrettyLittleThing has grown dramatically, so much so that revenue growth is now expected to be approximately 150% above the £55m generated in the 12 months to 28 Feb 2017.
Meanwhile Nasty Gal, ‘rebuilt by us from virtually a zero base after acquisition in March this year’ and ‘growing well month-on-month’, now operates six country specific websites; management is investing heavily to drive brand awareness in the UK, USA and elsewhere.
GLOBAL GROWTH WINNER
Based on Zeus Capital’s 3.17p earnings per share forecast for this year, Boohoo trades on an eye-watering prospective price-to-earnings ratio of 75 times.
Today’s correction demonstrates how stocks that are priced for perfection can be sensitive to any perceived negatives in their announcements, although Shares remains excited by one of the stock market’s most exciting global growth companies.
Additional breadth in the Boohoo and boohooMAN product ranges is driving growth in revenues and active customer numbers, while Boohoo’s marketing activity continues to build on a winning formula of social media influencers, bloggers, TV, outdoor, email, student campus tours and events.
PrettyLittleThing, which makes the hottest fashions and celebrity looks attainable for young consumers, has seen sales ramp-up dramatically ‘across all geographic regions’, while Nasty Gal, whose products target ‘the confident girl who is not afraid to be herself’, boasts international appeal.
Understandably then, Boohoo is striking while the iron is hot, making significant investments in technology, infrastructure and the customer proposition in order to drive long-term profitable growth across all its brands.
‘As a multi-branded, leading e-commerce business, boohoo continues to deliver premium growth alongside premium margin,’ writes Zeus Capital.
‘The outperformance and increased guidance yet again demonstrates the strengths of boohoo’s brand led model over established peers such as ASOS (ASC:AIM) and Zalando who are growing at circa 25% delivering single digit EBITDA margins of circa 7%. We expect further outperformance as the brands continue to grow worldwide.’
Zeus continues: ‘Since the beginning of full year 2017 there have been a total of nine upgrades that have driven multiple expansion, and alongside the latest upgrades the forecasts continue to try and catch up.
Given the strong statement of intent from the company to get towards £3bn of sales, we feel there is scope for the share price to continue to move higher as the company continues to gather market share, invest in growth and demonstrate the significant strengths of the business model.'
