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boohoo - full year guidance unchanged

Nicholas Hyett | 12 June 2019 | A A A
boohoo - full year guidance unchanged

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Boohoo Group Ordinary 1p

Sell: 276.30 | Buy: 276.70 | Change 14.10 (5.37%)
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Excluding exchange rate effects, first quarter revenues increased 39% to £254.3m. However, revenue growth in the key US market slowed from 81% last year to 66%.

boohoo continues to expect full year revenue growth of 25% - 30%, and an EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 10%.

The shares fell 4.6% following the announcement

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Our View

boohoo's combination of popular collections and cheap price tags has cooked up a storm. We can't really knock its performance to date.

An exclusively online presence means the group can stock small quantities of lots of different styles, and ramp up marketing and stock for 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 opportunistic approach to acquisitions is also a point in the group's favour, with the likes of PrettyLittleThing and Nasty Gal meaningfully boosting sales since they were bought in 2017. We don't know how latest addition, Miss Pap, will fare yet, but so far boohoo's had a good eye.

However, for all the potential, there are a couple of things to keep an eye on. The shares currently change hands for a lofty 43.5 times expected earnings. That's a price with a lot of high hopes sewn in, and the shares would struggle if growth disappoints. A lot is expected from the US market in particular, and growth here has slowed a bit recently. 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 logistical challenges with growing fast too. Rival ASOS had issues with new US operations recently, leading to unforeseen costs. Boohoo's managed its expansion well so far, but there are higher risks when things are moving this fast.

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. Boohoo's managed to buck the trend so far, but tough trading conditions in the sector are certainly something to be mindful of.

All-in-all though it's hard not to be impressed by boohoo's performance. If the group can manage its expansion plans and grow the international business fast enough to satisfy the share price, the group offers an exciting proposition.

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Trading details (figures at constant exchange rates)

Revenue across all geographic regions increased year-on-year, with the biggest improvement coming from Europe (excluding the UK), up 71% to £38.3m.The USA saw a 66% rise, and the UK was 27% ahead of last year with revenues of £140.6m. The Rest of World region grew 28%.

boohoo's own-branded line posted a 28% increase in sales, compared to 10% growth seen at the same time last year, reaching £123.5m. PrettyLittleThing saw sales rise 42% to £112.1m, and Nasty Gal revenues climbed 157% to hit £18.2m.

The group achieved a gross margin of 55% - which represents a slight decrease year-on-year.

In March 2019 boohoo added to its portfolio by acquiring the Miss Pap brand.

Net cash now stands at £194m, compared to £151m last year.

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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.

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