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boohoo - better April trading, but no guidance for 2021

Sophie Lund-Yates, Equity Analyst | 22 April 2020 | A A A
boohoo - better April trading, but no guidance for 2021

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Boohoo Group Ordinary 1p

Sell: 380.70 | Buy: 381.90 | Change 2.50 (0.65%)
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Revenue rose 44% to £1.2bn for the full year ended 29 February 2020. Underlying cash profits (EBITDA) increased 50% to £126.5m, reflecting better efficiency and marketing, which saw margins rise.

Trading was strong at the end of the year, but coronavirus means performance was more mixed from mid-March. However, sales have actually improved year-on-year so far in April. The continued uncertainty means boohoo is unable to give financial guidance for next year.

The shares rose 3.9% following the announcement.

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Our View

Like its peers boohoo experienced disappointing sales in March as lockdowns swept around the world, and customers thought twice before splurging on a new outfit. But we think boohoo is in a stronger position than a lot of its rivals.

For a start it can continue to trade when its high street counterparts can't. Sales in recent weeks have also improved year-on-year, which is no mean feat in the current climate. We suspect the group's cheap price tags have a strong part to play - why spend big on new clothes when no-one's around to see it?

Low cost items could also stand the group in good stead as things start to reopen. Its affordable products should perform better in the face of recessions and squeezed discretionary spending. The retail industry is already fiercely competitive and continued discounting has seen gross margins come under pressure, but crucially operating margins are in double-digit territory.

Boohoo also has net cash on the balance sheet, which provides a layer of financial protection.

All that means the group can stomach some disruption. As ever though, the extent of any damage will depend on how long the disruption lasts and how badly the economy suffers.

The untapped domestic is market shrinking by the day, so looking beyond the pandemic, international expansion is the key to future spoils. An opportunistic approach to acquisitions has helped here, with sales growing at an impressive rate.

It remains to be seen whether the group can make a success out of the recently acquired Coast and Karen Millen brands - details are quite thin on the ground and they've only been contributing to group revenue since October 2019. 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.

There will be ups and downs from here, but we continue to think boohoo has some attractive qualities, and is well placed to capture demand. However, a price to earnings ratio, prior to today's announcement, of 42.6 means the market has high hopes too and the share price could fall hard if performance disappoints.

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Full Year Results (figures at constant exchange rates)

In the UK, which accounts for 55% of revenue, sales were up 39% to £679.3m. In the USA there was a 61% increase to £263.6m, while Europe and Rest of World rose 62% and 19% to £188.4m and £103.6m respectively.

Across the brands, boohoo saw sales rise 39% to £600.7m, reflecting market share gains in key geographies. Gross margins decreased slightly as the group optimised its proposition. The second biggest brand, PrettyLittleThing achieved sales of £516.3m (2019: £374.4m). International markets performed very strongly. The USA remains Nasty Gal's biggest market, although growth in all markets was strong. That fed into a 109% increase in sales to £98.8m.

Newly acquired brands, Miss Pap, Karen Millen and Coast contributed almost £19m to revenue, and boohoo is pleased with their progress.

The group attracted 13.9m customers in the year, which is a 31% improvement on last year. The average order value now stands at £43.50 compared to £41.20 last year, with order frequency also increasing 5%.

Despite a reduction in gross margin to 54% from 54.7%, operating costs as a percentage of revenue decreased, helping EBITDA margins rise to 10.2% from 9.9%.

Capital expenditure was lower year-on-year at £45.6m (2019: £46.9m), which combined with higher profits meant free cash flow was 25.6% higher at £81.7m. Net cash stands at £240.7m.

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