Boohoo’s revenue fell by 23% to £297mn over the first half. Its Debenhams brand was the only area of growth, but this was more than offset by high double-digit declines at Karen Millen and its Youth Brands.
The group reported an underlying operating profit of £2mn, compared to a loss of £9mn in the prior period. The improvement was driven by heavy cost cutting, which has seen its fixed cost base nearly halve.
Free cash outflows improved from £39mn to £22mn. Net debt fell by £32mn to £111mn.
Full-year cash profit (EBITDA) is expected to grow to around £45mn (2025: £42mn), followed by double-digit growth in 2027.
The shares rose 15.4% in early trading.
Our view
Boohoo’s sales continued to slide lower over the first half, driven by declines in its Karen Millen and its Youth Brands divisions. Despite this, strong cost-cutting initiatives are helping to prop up the bottom line, and the market reacted very positively on the day.
Performance in its other division, Debenhams, is much better thanks to its marketplace model. This involves allowing third-party brands to sell their goods on Debenham’s online platform, with boohoo taking a cut of any third-party sales made, and banking just that cut as revenue.
The marketplace model brings a host of benefits, allowing sales to scale quickly as more sellers are brought into the fold. The third-party sellers also own the stock and are responsible for picking, packing and shipping orders, removing a host of costs and inventory risk from boohoo’s operations. That’s had a significant positive impact on the group’s profitability so far, and more cost benefits are expected in the near term.
The marketplace model has become the blueprint for an attempted turnaround in its other struggling divisions. For context, despite only contributing around 17% of group revenue last year, Debenhams brought in more than half of the total cash profit (EBITDA).
While progress on trimming the cost base has been impressive, future growth relies on getting the top line moving in the right direction again. Customer numbers were continuing to fall at the last count, so breathing life back into its Youth Brands division (which includes PrettyLittleThing, boohoo, boohooMAN) needs to be the main focus in our eyes. With their strong social media following, these brands have the potential to be great assets. That’s why we’re disappointed to see the group exploring options to sell PrettyLittleThing.
To be clear, the group remains loss-making. A nearly £40mn equity raise in 2024 means the balance sheet’s in reasonable health for now. It’s also provided some breathing room while the CEO Dan Finley, executes his strategy change.
Tensions with its largest shareholder (Frasers) remain high, causing boohoo to push through a new management compensation package without shareholder approval. Alongside a murky track record of labour exploitation, elevated corporate governance risks are something for investors to be aware of.
Despite the pivot in strategy, our concerns about Boohoo haven’t disappeared. We’ll need to see key customer metrics, sales and profits trending in the right direction before we get too excited. The lowly valuation may look attractive at face value, but it reflects the major challenges ahead, as well as a competitive retail market.
Environmental, social and governance (ESG) risk
The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.
According to Sustainalytics, Boohoo’s management of ESG risk is average.
The company's disclosure is poor, signalling a lack of accountability to investors and the public. Governance has been a longstanding issue, with the most recent development on executive pay (discussed above) highlighting some of the risks. It has some initiatives to manage risks related to material ESG issues, however, the company lacks policies and programmes in key areas. Furthermore, the company has been involved in numerous significant ESG-related controversies.
Boohoo key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. 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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