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Boohoo - revenue stumbles and profits collapse

Boohoo's full-year revenue fell 13% to £1.8bn, ignoring the effect of exchange rates. UK and International revenues declined...

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Boohoo's full-year revenue fell 13% to £1.8bn, ignoring the effect of exchange rates. UK and International revenues declined 9% and 13% respectively, with lower consumer demand being blamed on cost-of-living pressures and extended delivery times.

Underlying operating profit fell 92% to £6.9m, impacted by the fall in sales as well as freight, labour and energy cost inflation.

Free cash flow improved to an inflow of £30.2 from an outflow of £251.2m last year, due to inventory and working capital improvements. Net cash improved slightly from £1.3m to £5.9m.

This year, revenues are expected to be anywhere between flat and a decline of 5%. Underlying cash profit (EBITDA) is expected to land between £69-78m, with a margin of 4%-4.5%.

The shares jumped 13.8% following the announcement.

View the latest boohoo share price and how to deal

Our view

Boohoo's full-year results were a painful read for investors. Revenues declined across all regions, most notably down by double digits in the USA, which is seen as the group's route to major growth.

The cost-of-living crisis is hurting just about everyone, including companies at the lower end of price-points like boohoo. With inflation continuing to bite, conservative consumers are holding on tight to their hard-earned cash, resulting in boohoo's active customer numbers falling by 10%. If customer numbers continue falling, it'll be very hard to drive profits in the right direction.

The group's planning to tighten its belt to help meet this year's margin and profit targets. However, cost-cutting isn't a long-term solution. These measures can only be taken so far - eventually you run out of holes on your belt.

And while some of the issues outside of the group's direct control are starting to abate - supply chains are unclogging, freight costs are falling, and overall cost inflation is easing - they all remain at elevated levels. This likely means volumes will have to pick up or prices will have to rise if profit targets are to be hit. There are also boohoo-specific problems.

The group's spent heavily on increased capacity, especially abroad where there's more room for growth. If this turns out to be a systemic slowdown in sales growth, not just a blip, those extra warehouses will become a big problem for profits. The world of fast fashion is a competitive place, by the time the group's US distribution network becomes fully operational in 2024, its American shoppers may have moved on.

Significant improvements in inventory levels and cash management have freed up some funds to use elsewhere in the business. That's improved the balance sheet health and the group now carries a small net cash position, meaning we're not concerned about any immediate cash crunch.

For those prepared to accept a bit more risk, boohoo's longer-term proposition shows a glimmer of hope. It has a UK based, fast-fashion supply network. Its model allows it to react to changing trends and demand levels extremely quickly, ultimately helping sales and margins. This is what keeps prices so low - it's a unique selling point.

Acquisitions including Debenhams, Dorothy Perkins and Coast also offer growth potential in new demographics too. Multi-label offerings have fared well at other online retailers. The question now is how quickly boohoo can build scale and bring costs down.

Overall, we're more concerned about boohoo than we have been. With revenues expected to decline further next year, boohoo's got major challenges on its hands to turn the ship around. This has been reflected in boohoo's valuation which has come down significantly over the last two years. With so much uncertainty ahead, investors should expect a bumpy ride.

boohoo key facts

All ratios are sourced from Refinitiv. 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 Refinitiv. 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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 16th May 2023