Fast-fashion retailer Boohoo falls 6% as festive downgrade raises frowns


– Sales fell 11% in four months to December 2022

– Company cuts guidance again

– Retailer facing fierce competition from Shein

Shares in Boohoo (BOO:AIM) cheapened 6.1% to 44.5p after the online fast-fashion seller reported an 11% fall in group sales to £637.7 million for the four months to 31 December 2022 as youthful fashionistas continued to tighten their belts.

This marked a further slowdown from the retailer behind brands ranging from including MissPap and PrettyLittleThing to Debenhams and Dorothy Perkins, with Boohoo seeing declines of more than 10% at constant exchange rates across all its regions over the four month period including Christmas.

Gross margins declined from 51.9% a year earlier to 49.7% as the group slashed prices to improve its high inventory position.

ANNUAL SALES TO SLUMP 12%

Manchester-based Boohoo stressed adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) for the year to February 2023 would meet expectations.

Yet the online retailer now expects group revenue for the year to fall by 12% and is guiding to an EBITDA margin of around 3.5%. Both metrics represent modest downgrades versus previous guidance for a 10% sales drop and a margin in the 3%-to-5% range.

Boohoo’s UK division suffered an 11% sales decline year on year to £400.8 million, albeit better than previously feared, while long customer delivery times continued to hurt the overseas business.

In the US, where Boohoo faces fierce competition from Chinese fast-fashion rival Shein, sales tumbled 17% in constant currency.

CAN BOOHOO ‘REBOUND STRONGLY’?

Chief executive John Lyttle insisted Boohoo’s performance ‘reflects the normalisation of the channel shift online over the last twelve months, but demonstrates the significant market share gains the group has made over the last three years.’

And while the demand outlook is ‘uncertain’ due to macro-economic factors, Lyttle expects cost inflation will to begin to moderate in the second half of the year and flagged Boohoo had reduced inventory by 27% year-on-year.

‘Boohoo has continued to invest in key strategic priorities that will enable future growth,’ enthused Lyttle, ‘and the progress made gives us confidence that as macro-economic headwinds ease it will be well-positioned to rebound strongly.’

EXPERT VIEWS

Liberum Capital is sticking with its negative stance on the stock: ‘While Boohoo are confident of achieving pre-pandemic growth and margin rates, we are less convinced. The group has not gained much share of the UK online clothing market in the last three years and has clearly lost massive ground to Shein in the US and to online marketplaces in Rest of Europe,’ said the broker.

AJ Bell investment director Russ Mould commented: ‘Sales are falling, margins are being heavily squeezed and the company has nudged revenue guidance lower’, though at least the firm is ‘making progress on the basics of retail, carefully managing its costs, cash and inventory so it can keep paying the bills and avoid being left with lots of unwanted stock which it then has to shift at a major discount.’

Mould added: ‘Boohoo may be hanging on to some of the market share gains it made during the pandemic but there has certainly been a fightback from physical retail in the clothing space.

‘Add on social and environmental concerns about the way its clothes are made – with Boohoo having a far from unblemished record in its supply chain – and there are plenty of obstacles to winning back the market’s favour.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.

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Issue Date: 19 Jan 2023    



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