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boohoo - revenues and profits on the rise

George Salmon | 24 April 2019 | A A A
boohoo - revenues and profits on the rise

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Boohoo Group Ordinary 1p

Sell: 260.60 | Buy: 261.90 | Change 1.40 (0.54%)
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Excluding exchange rate effects, boohoo's full year revenue rose 47% to £856.9m. That's ahead of expectations of 43%-45%, thanks to strong growth across all brands and regions.

EBITDA (earnings before interest, tax, depreciation and amortisation) increased 49%, to £84.5m.

The shares were broadly flat following the announcement.

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Our View

boohoo sells fast fashion aimed at 16 - 30 year olds. And it sells that fashion very cheaply. It's not uncommon to see dresses sell for under £5.

While other retailers have been struggling as consumers tighten the purse strings, boohoo's been growing strongly.

An exclusively online presence means the group can stock small quantities of lots of different styles, and ramp up orders of the most popular. This 'test and repeat' model means boohoo is ideally placed to keep up with the frantic pace of fast fashion. An online model also means expansion is easier than a bricks and mortar retailer, which helps boohoo pursue growth at a snappy pace.

The UK is the biggest market for now, but international progress has been heating up. PrettyLittleThing and Nasty Gal have been boosting performance in the US - where the potential market is huge.

Overall, the group's targeting revenue growth of 25% a year and higher margins.

However, for all that potential, there are a couple of things to keep an eye on. The smaller brands will need to keep delivering, and it's hard to see how sales momentum can be maintained without spending ramping up.

There are other challenges too. The retail environment is particularly tough, with profit warnings from rival online giant ASOS showing the troubles aren't just on the high street. And with a lofty price to earnings ratio of 42.1, there's scope for the shares to fall if performance disappoints.

But as long as the group can manage its expansion and customers want to buy clothes the same price as a meal deal, we think the group will be in an attractive position.

There are real opportunities abroad, and while seizing them will require investment, the group's net cash reserves of £190.7m mean it's got the firepower.

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Full Year Results (figures given at constant exchange rates)

The UK, which accounts for 57% of revenue - saw sales rise 37% to £488.2m. In the USA, they were up 81% to £166.3m. Europe and Rest of World revenue increased 67% and 30% respectively.

Across the brands, boohoo saw sales rise 15% to £434.6m. It now has 7m active customers, up 9% from 2018. The second biggest brand, PrettyLittleThing (PLT), saw a 107% rise in revenue, to £374.4m, and a 70% increase in active customer numbers. Nasty Gal posted a 122% rise in customers, and revenues doubled to £47.9m.

The EBITDA margin beat expectations at 9.9%. That was driven by tighter stock control and improved customer proposition improving gross margins.

Capital expenditure for the year was £46.9m, broadly level with last year. With profits rising and working capital levels falling, the group ended the year with a net cash position of £190.7m, up from £133m last year.

Looking ahead, boohoo expects revenue growth this year to be 25%-30%, and to achieve an EBITDA margin of 10%.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.