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Boohoo shares slide on weak outlook

The online retailer has cut its earnings guidance for the full-year

Source: Bloomberg

Shares in Boohoo fell by 8% to 33p on Wednesday after the company posted a £15 million loss for the half-year, compared to a £24.6 million profit last year, and falling revenues.

At £882.4 million, the online fashion retailer’s interim sales were up 56% on 2019 figures (£564.9 million) but down 10% compared to the same period last year (£975.9 million). Meanwhile, gross margins dipped by 210 basis points to 52.5% year-on-year.

The company said that at 4%, returns were higher than during the period than during the pandemic, while sales were hit by a perfect storm of softer consumer demand, higher freight and logistics costs and higher cost inflation, as well as “strategic investments” made across the company.

UK sales were up by 12% before returns, however, and Boohoo’s management says it was encouraged by the momentum of its recently acquired brands, including Debenhams’ digital store. UK revenue growth over the past three year stands at 73%.
Sales declined by 29% in the US, hampered by increased delivery times, and by 2% in Europe. However, the company says that its new customs warehouses should help improve overseas sales margins and US sales are up by 60% over the last three years.

Inflationary cost pressures bite at Boohoo

Group chief executive officer John Lyttle told investors that over the past three years, Boohoo had enjoyed “significant gains in market share” across its brand portfolio, especially in the UK where he says its “price, product and proposition resonate strongly with customers.” However, he acknowledged that “performance in the first half was impacted by a more challenging economic backdrop weighing on consumer demand.”

“We have a clear plan in place to improve future profitability and financial performance through self-help via the delivery of key projects, which will stand us in good stead as macro-economic headwinds ease,” he added. “We remain confident in the long-term outlook, as we continue to offer customers unrivalled choice, inclusive ranges and great value pricing, giving them even more reasons to shop with us.”

Challenging outlook for the online fashion retailer

However, Boohoo also warned investors that it was cutting revenue guidance for the full-year as a result of the “macro-economic and consumer backdrop” and the effect it had had on the company’s first-half revenues. Management expects revenue declines to continue into the second-half and, as such, has reduced its earnings forecasts from adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) margins of 4% and 7% to “3% and 5%”.

Sherri Malek, analyst at broker RBC, told the FT that the new earnings forecasts suggested a downgrade of about 25 per cent for full-year underlying earnings and that estimates beyond 2022 could also be negatively affected.

At 37p, the shares have collapsed by 83% this year. While they may look oversold, with inflationary pressures continuing, it may be a while before any share price recovery takes place.

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