Boohoo’s gross merchandise value (the total value of sales on its platform) rose by 0.5% over the first quarter, driven by strong performances at Debenhams and PrettyLittleThing. Gross margins improved by 1.2 percentage points to 53.5%, helped by falling return rates.
The underlying cash profit (EBITDA) margin expanded ‘materially’ in the period, driven by the shift to an marketplace model and cost savings.
For the year ending February 2026, guidance for underlying cash profit of £53mn remains unchanged. In 2027, that’s expected to grow by double-digits, supported by £100mn of fixed cost savings. Free cash flow is also expected to turn positive in 2027.
The shares rose 11.7% in early trading.
Our view
The fast-fashion company, which now refers to itself as Debenhams, delivered a positive first-quarter trading update as its turnaround gains traction. Sales growth on the platform is finally back in positive territory, albeit marginally. With further cost cuts planned, underlying cash profits (EBITDA) this year are now expected to grow ahead of market forecasts, and markets reacted very positively on the day.
Momentum in its largest division, Debenhams, continues to impress, thanks to its marketplace model. This involves allowing third-party brands to sell their goods on Debenham’s online platform, with the group 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 inventory 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 this year.
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 in 2025, Debenhams brought in more than half of the total cash profit (EBITDA).
Although sales growth has returned to positive territory, the 0.5% uplift delivered in the first quarter is slim. Future success relies on really ramping up top-line growth, so breathing life back into its Youth Brands division (which includes PrettyLittleThing, boohoo, boohooMAN) needs to be the main focus. With their strong social media following, these brands have the potential to be great assets.
Tensions with its largest shareholder (Frasers) remain high, causing boohoo to push through a management compensation package without shareholder approval. It’s also the reason why the group’s name change to Debenhams hasn’t been made official across the board. Alongside a murky track record of labour exploitation, investors should be aware of elevated corporate governance risks.
Good headway has been made on bringing debt and interest costs under control, helped in no small part by a £40mn equity raise back in February. It also means interest costs are declining, providing CEO Dan Finley with additional breathing room to push ahead with his strategic plans.
Despite the pivot in strategy, our concerns about Boohoo haven’t disappeared. We’ll need to see more improvement in key customer metrics, sales and profits 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
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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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