Boohoo's revenues fell 13% to £637.7m in the four months to 31 December, ignoring the effect of exchange rates. This was in-line with the group's previous expectations. UK revenues declined 11% compared to a "strong" prior year, and all other regions declined, including the USA which was down 17%. The group said longer delivery times are affecting the group's position.
Gross margin for the period was 49.7% and is expected to improve year on year during the final quarter, reflecting fewer discounts on boohoo's clothes.
Inventory has been significantly reduced, down 27% year on year. Combined with tighter cost controls, cash generation has improved. Net debt is expected to be equivalent to under one times cash profits at the end of the financial year.
As global supply chain disruption eases, the group to expects to see some relief to freight rates. Overall cost growth is expected to begin to moderate as the year progresses.
Full-year reported revenues are expected to decline 12%.
The shares fell 5% following the announcement.
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Our View
Boohoo's Christmas trading period didn't provide much to be festive about. Revenues fell across all regions, most notably down by double-digits in its two largest markets, the UK and USA. When the corner will turn is a hard call to make.
Consumer sentiment has soured of late, with consumers becoming more conservative when it comes to spending. To make matters worse, postal strikes in the UK left many people to worry whether their Christmas shopping would arrive on time. This caused consumers to trade in the convenience of online shopping for the certainty of high street stores.
Despite this, a lot 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 normalising too. But 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 infrastructure spend means the balance sheet's strength has been eroded too and now carries a small net debt position. We're not worried about an immediate cash crunch, but we'll be keeping an eye on capital expenditure moving forward.
With revenues expected to decline further next year, boohoo has already been tightening its belt in a bid to meet margin 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.
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 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. The group's breakneck response speed to new trends has been muted by its inability to get those styles to customers quickly. This has been reflected in boohoo's valuation which has come down significantly over the last year. With so much uncertainty ahead, investors should expect a bumpy ride.
boohoo key facts
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