Boohoo’s first-half revenue fell 15% to £620mn. Gross Merchandise Values (GMV) were down across all regions, including a 2% decline in the UK and an 18% decline in the US.
As a result, underlying cash profit (EBITDA) fell by nearly a third to £21mn.
£222mn of debt had been refinanced with existing lenders, which should reduce the group’s interest costs.
CEO John Lyttle has also decided to step down after five years in the role. Lyttle will remain with the company until a successor is found to help ensure a smooth transition.
In the second half, the group expects to generate higher GMV and underlying cash profit, despite further investment into its brands.
The shares were broadly flat in early trading.
Our view
Boohoo’s troubles continued into the first half of the year, with revenue and profits both falling at double-digit rates. It’s perhaps no coincidence that CEO John Lyttle decided to call time on his five-year stint in the top seat and the search for a replacement is underway.
The group’s also looking at ways to restructure the business. The main option being considered is spinning off one or more of its core divisions in an attempt to unlock shareholder value. But we’re not convinced that’s the answer. Breathing life back into its young fashion brands (PrettyLittleThing, boohoo, boohooMAN) should be the main focus in our eyes. Improvements here would be far more likely to move the dial.
In terms of actual business performance, customer numbers continued to fall last year. With key customer performance metrics trending in the wrong direction too, it doesn’t appear that Boohoo’s initiatives are having the desired impact.
Some of the issues outside of the group's direct control have started to abate - supply chains are unclogging, freight costs are falling, and overall goods cost inflation is easing. From these, Boohoo's identified more than £125mn of cost savings that it expects to deliver this financial year.
But these savings are being reinvested into keeping prices low, which is the core identity of the brand. While we commend the intention behind this, it's hurting the profitability. Unless Boohoo regains control over falling customer numbers and volumes, it's going to be very hard to drive revenue and profits back in the right direction.
There are also Boohoo-specific problems. After investing heavily in expanding into the US and setting up a distribution network there, the plug has been pulled. That looks set to hurt cash flows and the balance sheet as Boohoo winds up operations, further adding to its near-term problems. US customers will now be served from a warehouse in Sheffield, meaning delivery times and costs are likely to be hefty for overseas customers.
For those prepared to accept 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 when volumes are in full flow. This is what keeps prices so low - it's a unique selling point. Continually nailing its proposition and bringing customers back to its site is what’s needed, but it’s a tough ask in a competitive market.
Overall, our concerns about Boohoo continue to mount. With key customer metrics and profits trending in the wrong direction, major challenges lie ahead. This has been reflected in the group's valuation, which has come down significantly over the last few years. With so much uncertainty ahead, investors should expect a bumpy ride.
Environmental, social and governance (ESG) risk
The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.
According to Sustainalytics, Boohoo’s management of ESG risk is average.
The company's disclosure is poor, signalling inadequate accountability to investors and the public. It has some initiatives to manage risks related to material ESG issues, however, the company lacks policies and programmes in key areas. Furthermore, the company has been involved in numerous significant ESG-related controversies.
Boohoo key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. 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.
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