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boohoo - upgrades revenue guidance

Sophie Lund-Yates | 14 January 2020 | A A A
boohoo - upgrades revenue guidance

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Boohoo Group Ordinary 1p

Sell: 314.10 | Buy: 314.60 | Change 3.20 (1.03%)
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boohoo now expects full year revenue growth to be between 40% - 42%, ahead of previous guidance of 33% - 38%. That reflects strong revenue growth across all key regions, and record trading in the last four months of 2019.

The shares rose 2.3% 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.

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.

An opportunistic approach to acquisitions is another point in the group's favour, with the likes of PrettyLittleThing and Nasty Gal meaningfully boosting sales since they were bought in 2017.

It remains to be seen whether the group can make a similar success out of recently acquired Coast and Karen Millen brands. The more mature customer base is a bit of departure for the group, and only time will tell if boohoo's influencer-led marketing will resonate with older shoppers. A wider customer base would certainly be welcome though, and higher end fashion could also be higher margin.

All said, there's plenty of potential. And that comes at a price - the shares currently change hands for a lofty 49.5 times expected earnings. That requires near perfect execution going forwards. A lot is expected from the US market in particular, and historically it's been a bit of a graveyard for UK retailers. A stumble could knock the shares hard.

boohoo's managed its expansion well so far, but bigger rival ASOS has struggled with new infrastructure projects throwing up unexpected costs. boohoo will have to navigate similar hurdles as it grows. Another thing to consider is the potential for cannibalisation of sales - the brands are all growing in sync for now, but it's not unfeasible these could end up poaching sales off each other in the future.

For now, sales are racing, and if the group can deliver expansion plans without a hiccup while growing the international business fast enough to satisfy bullish investors, the shares would benefit.

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Trading details (constant currency)

In the four months to the end of December, group revenue rose 44%, reaching £473.7m. Growth for the year-to-date was also 44%, with total revenues of £1bn.

In the UK, revenue was up 42% in the last four months, at £255.8m. In the rest of Europe there was a 54% increase, and the region posted revenues of £69.6m.

The US division increased revenue by 57% (£110.6m), with Rest of World seeing a 13% rise (£37.7m).

boohoo's own-branded line reported £232.6m in revenues, reflecting a 42% increase. PrettyLittleThing saw revenue improve 31%, reaching £190.8m. Nasty Gal's sales more than doubled, with growth of 102% to £41.5m.

Gross margins were down across all three brands, meaning group gross margin of 53.5% was 0.7 percentage points lower over the period.

boohoo has a net cash position of £245m, compared to £207m in August.

Looking ahead, the group said underlying cash profit margins for the full year are now expected to be 10% - 10.2%, compared to previous guidance of 10%. It also highlighted the integration of MissPap, Karen Millen and Coast which are "showing great promise".

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