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Margin pressures can't take shine off Boohoo's spectacular growth

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today Jan 14, 2020
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Boohoo’s trading updates are always interesting to see, if only to work out whether its market-leading explosive growth is continuing at the same pace. But it's a particularly interesting one to watch at the moment given that it now owns Karen Millen and Coast, two labels that are quite different from its line-up of Boohoo, PrettyLittleThing (PLT), Nasty Gal and MissPap.


Boohoo



So what did its update on Tuesday tell us? Unfortunately, very little about those newly-acquired brands. But we did hear that for the four months ended December 31, it saw “continued strong growth across all brands in all regions”.

Its total group revenue in the period rose 44%, both on a reported and currency-neutral basis, to £473.7 million. By region, the UK was up 42% to £255.8 million and the rest of Europe rose 57% to £69.6 million. The US was up an equally good 57% to £110.6 million and the rest of the world rose 13% to £37.7 million.

The overall percentage rise was exactly the same for the year to date (the 10 months up to December 31) with its total sales in that period rising to £1.038 billion. However there were some variations within the regional figures. Over the 10-month period, the UK rose ‘only’ 38%, but the rest of Europe was up a healthier 64% and the US was up 60%, while the rest of the world rose 19%.

The company added that it saw “excellent operational performance in both warehouses” and the “successful integration and relaunch of MissPap, Karen Millen and Coast onto our multi-brand platform”.

So was there any bad news in the report? Well, the four-month gross margin dropped 70bps to 53.5%, perhaps highlighting the intense discounting pressures that the fashion sector saw towards the end of last year. But margin issues looked to be the only blots on an otherwise impressive landscape.

Looking at the performance by individual brand, Boohoo generated revenue of £232.6 million, up 42%, with year-to-date revenue of £513.7 million, up 38%. The gross margin for the four months was 52%, down 20bps.

PLT’s revenue rose 32% to £190.8 million, but was up a higher 37% for the year as a whole at £428.4 million. The gross margin for the four months fell a sharper 130bps to 55.1%.

Nasty Gal revenue surged 102% to £41.5 million, and rose 123% in the 10-month period to £85.3 million. The gross margin for the four months, at 54.3%, was down only 10bps.

Unfortunately, there was no detailed information about Karen Millen, Coast or MissPap, so it looks like we’ll have to wait until the company has operated those brands for longer to see just how they’re doing. But CEO John Lyttle did say that “the newly-acquired brands are showing great promise and open different target markets for the group, in line with our strategy to build our multi-brand platform."

The company guided for revenue growth in the current financial year (to the end of February) of between 40% and 42%, ahead of its previous guidance of 33% to 38%. And despite margin pressures, it expects its group adjusted EBITDA margin to sit between 10% and 10.2%, ahead of its previous guidance of around 10%. All other guidance for the current financial year and its medium-term guidance to deliver sales growth of 25% annually and 10% EBITDA margin remained unchanged.

John Lyttle was understandably upbeat and said he was “delighted to report the group has enjoyed record trading in the last four months of 2019. All of our brands have performed exceptionally well and delivered strong market share gains. We have continued to see operating leverage in our more established brands, and will continue to invest into them and our newly-acquired brands”.

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