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30 September 2020

Boohoo’s performance continues on upward trend

Boohoo released its first half results for 2020, reporting revenue 6% above company forecasts and adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) 11% above. The group experienced 18% revenue growth and a 9% EBITDA margin during the period. Management expects revenue growth to be in the range of 28–32%+ year-on-year higher than the +25% year-on-year guided by the company pre-COVID19. Management also expects an adjusted EBITDA margin of around 10%. These margins are impressive when bearing in mind Boohoo’s low priced, fast-fashion products.

UK revenue during the half year was up 37%, with international up 55% and international including US revenue up 83%. International revenues now make up 47% of the group’s total, a 3% increase from 2019. This will allow the group to reduce its reliance on the spending of one region, in particular the UK, diversifying its customer base.

Active customer numbers in the last 12 months increased by 34% to 17.4m, with a solid increase in new customer acquisition during lockdown. The number of items per basket increased by 10% YoY, especially in overseas markets. This is likely due to customers shopping as a form of entertainment throughout lockdowns, changing their wardrobes in time for winter and contributing to larger orders.

A downside during the quarter is that with capital expenditure rising, likely due to increased acquisitions, the firm will want to see strong customer retention rates, with the price of obtaining new customers further eating into its relatively thin margins. Boohoo has acquired the remaining 34% minority shareholding in PrettyLittleThing. In addition, the acquisition of the Oasis and Warehouse brands could prove synergistic to the groups scalable, multi-brand portfolio. Even after acquisitions and higher capital expenditure, the group maintains a strong balance sheet with net cash of £344.9m, up from £207.3m in 2019, providing the firm with a large war chest with which it can continue its acquisitive strategy.

If momentum sustains, it is likely that the group will continue to beat estimates. However, margins could be supressed with increased acquisitions if synergies do not present themselves.

Our understanding here is that Boohoo may be overvalued, but it is making the correct moves to create a diversified portfolio of online retailers, which will help to stabilise revenues and margins in the long term. Coupled with healthy and growing financials, it seems as though the supply chain concerns raised earlier in the year have been brushed under the carpet and will not significantly affect the financial performance of Boohoo.

Please note that investments and income arising from them can fall as well as rise in value. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Boohoo’s performance continues on upward trend
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