Boohoo Group plc (BOO) Ordinary 1p

Half-year revenue declined 18.0% to £729.1m, ignoring exchange rate impacts. UK and US revenue declined 19.0% and 12.0% respectively. Active customer numbers were down 12.0% to 17.0m.

Underlying operating profit fell from £9.6m to a loss of £3.9m, impacted by the fall in sales and margins thinning.

Net debt increased from £10.4m to £35.0m. Free cash flow fell from £20.6m to £2.8m, in part due to the higher losses.

Given the slower volume recovery than the group had anticipated, full-year guidance has been downgraded. Revenue is now expected to decline by 12-17%, compared to a 0-5% decline. Underlying cash profit (EBITDA) is now expected to land between £58-70m, down from £69-78m.

The shares fell 9.7% following the announcement.

Our view

Boohoo's half-year results were a painful read for investors. Revenue declined at double-digit rates across all regions, including 12% in the US which is seen as the group's route to major growth.

It's undoubtedly a tough time for consumers with high levels of inflation putting a strain on discretionary spending. That's why it's no real surprise to see customer numbers fall. But the rate at which they're falling is concerning and suggests boohoo's losing market share.

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 goods cost inflation is easing. From these, boohoo's identified more than £125m of annualised cost savings set to be delivered across the next two years.

But these savings are set to be reinvested into keeping prices low, which is the core identity of the brand. While we commend the intention behind this, it's hurting the bottom line in the short term. Unless customer numbers and volumes pick back up, it's going to be very hard to drive revenue and profits back in the right direction.

There are also boohoo-specific problems. The group's spent heavily on increased capacity, especially abroad where there's more room for growth. If boohoo doesn't get its proposition and marketing campaigns right here, 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 careful cash management have freed up some funds to use elsewhere in the business. But with bank facilities now fully drawn, any further cash needs will require support from the company's bankers or shareholders.

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 increase volumes.

Overall, we're more concerned about boohoo than we have been. With full-year revenue guidance getting slashed significantly and cash resources stretched, boohoo's got major challenges on its hands to turn the ship around. This has been reflected in the group's valuation, which has come down significantly over the last two years. With so much uncertainty ahead, investors should expect a bumpy ride

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