Boohoo tumbles on sales guidance reversal

Fast-fashion retailer Boohoo (BOO) wants to get off the clearance rack. To do this, it is working on profitability and cutting the inventory held around the world. Management has stripped back some costs but better margins will do little if buying is slowing down. This is what investors saw at the release of Boohoo’s results for the six months to 31 August. The headline was that full-year sales are now forecast to fall 12-17 per cent, “given the slower volume recovery than previously anticipated”.  First-half revenue was down 17 per cent. 

Boohoo is still chasing volume – chief executive John Lyttle said the average selling price had dropped 1 per cent in the period. “This is in stark contrast to the market overall,” he said. This includes items su h as a dress designed by a Kardashian for £15. The company now includes Debenhams and Karen Millen as well. 

Despite the price cuts, the critical UK division saw sales drop 19 per cent, only surpassed by the smaller rest-of-world division, which fell 23 per cent. The US was more resilient, falling 11 per cent. Shoppers there have largely kept buying with purchasing power remaining higher thanks to lower inflation and a strong US dollar. To attract more of these buyers, Boohoo has opened a distribution centre there. “Delivery times to the US for most of the period remained elevated compared to pre-pandemic levels, and this has undoubtedly impacted demand,” the company said. The new hub is now open and could boost second-half sales. 

This expansion came through in the exceptional costs in the first half, alongside “re-platforming” the e-commerce front end. This means bringing more of the website and data management in-house. The operating loss jumped 80 per cent to £21mn. 

The company pointed to lower operating costs and permanent savings as signs it is moving in the right direction, however. “We see a clear path to improved profitability and getting back to growth,” said Lyttle. Analysts see Ebitda for the year doubling on the 2023 financial year despite the fall in earnings, to £63mn. Boohoo’s share price has tumbled in reaction to further sales weakness, taking its year-to-date drop to 22 per cent. The market has not overreacted. Sell. 

Last IC View: Sell, 42p, 16 May 2023