Given the recent shareprice decline , Boohoo (BOO ) rightly updated the investors today wrt its Q4’22 Given the recent shareprice decline, Boohoo rightly updated the investors today wrt its Q4’22 trading.
Here cutting FY22 (Feb y/e) expectations for both net sales growth to 12%-14% (est Q4 at 0% to +2%) vs 20%-25% previously. And adjusted EBITDA of 6%-7% vs 9%-9.5% before, with H2’22 net revenues (mid-point) forecast to be around £996m (+7% YoY) vs £976m in H1’22 & £928m H2’21.
Implying adjusted FY22 EBITDA of between £117m-£139m (vs £85.1m H1’22), or circa -26% lower than £173.6m LY, and broadly flat on pre-pandemic levels (£126.6m FY20). So what's the story?
Well, although BOO is seeing strong underlying UK demand, it is nonetheless being temporarily buffeted by a number of factors.
Namely elevated product returns (up 12.5% vs LY & +7% pre-pandemic) due to “exceptionally high dress mix” (eg higher priced garments such as 'party frocks' which aren’t 1 size fits all, & cancelled Xmas events ie Omicron effect).
Alongside increased in/outbound freight (re air shipments to overseas markets - apparently £12/parcel now to the US vs £6 pre-covid), one off rebranding & infrastructure costs (£33m vs £22.5m) and general consumer uncertainty reflecting the omicron variant.
In addition, the US & Europe have suffered from not having local warehouse distribution. Meaning products are taking longer to deliver to consumers (eg 10 days in US & 7-8 days EU vs 3-4 pre-pandemic) than would otherwise be the case in the UK. Again impacting demand and reducing marketing effectiveness - particularly vs immediate high-street availability as consumers want their clothes quickly for nights-out.
That said, these issues should be largely transitory, with the company sporting £70m of net cash to more than ride out the headwinds.
What's more management are confident in Boohoo’s future prospects - reiterating its long-term targets of 20% pa organic growth and 10% EBITDA margins. Ultimately tracking towards a £5bn revenue group (vs £1,745m LY) - which from my calculations would be worth around 15x EV/EBITDA, or circa £5.90/share (vs 140p today).
CEO John Lyttle adding "We have gained significant market share during the pandemic. The current headwinds are short term & we expect them to soften when pandemic related disruption begins to ease. Looking ahead, we are encouraged by the strong performance in the UK, which clearly validates the Boohoo model. Our focus is now on improving the international proposition through continued investment in our global distribution network, capable of delivering >£5 billion of net sales."
Hence I remain a holder & plan to tuck the stock away, until (hopefully) better times return.
Finally wrt FY23, no 'official' guidance was provided, albeit sensible estimates appear to be for circa 7% sales growth (ie similar to H2’22) alongside 6%-7% EBITDA margins. Including 3% profitability erosion reflecting extra freight costs & lack of US/EU warehousing, and 11.5% marketing spend as a % turnover. Given the recent shareprice decline, Boohoo rightly updated the investors today wrt its Q4’22 Given the recent shareprice decline, Boohoo rightly updated the investors today wrt its Q4’22 trading.
Here cutting FY22 (Feb y/e) expectations for both net sales growth to 12%-14% (est Q4 at 0% to +2%) vs 20%-25% previously. And adjusted EBITDA of 6%-7% vs 9%-9.5% before, with H2’22 net revenues (mid-point) forecast to be around £996m (+7% YoY) vs £976m in H1’22 & £928m H2’21.
Implying adjusted FY22 EBITDA of between £117m-£139m (vs £85.1m H1’22), or circa -26% lower than £173.6m LY, and broadly flat on pre-pandemic levels (£126.6m FY20). So what's the story?
Well, although BOO is seeing strong underlying UK demand, it is nonetheless being temporarily buffeted by a number of factors.
Namely elevated product returns (up 12.5% vs LY & +7% pre-pandemic) due to “exceptionally high dress mix” (eg higher priced garments such as 'party frocks' which aren’t 1 size fits all, & cancelled Xmas events ie Omicron effect).
Alongside increased in/outbound freight (re air shipments to overseas markets - apparently £12/parcel now to the US vs £6 pre-covid), one off rebranding & infrastructure costs (£33m vs £22.5m) and general consumer uncertainty reflecting the omicron variant.
In addition, the US & Europe have suffered from not having local warehouse distribution. Meaning products are taking longer to deliver to consumers (eg 10 days in US & 7-8 days EU vs 3-4 pre-pandemic) than would otherwise be the case in the UK. Again impacting demand and reducing marketing effectiveness - particularly vs immediate high-street availability as consumers want their clothes quickly for nights-out.
That said, these issues should be largely transitory, with the company sporting £70m of net cash to more than ride out the headwinds.
What's more management are confident in Boohoo’s future prospects - reiterating its long-term targets of 20% pa organic growth and 10% EBITDA margins. Ultimately tracking towards a £5bn revenue group (vs £1,745m LY) - which from my calculations would be worth around 15x EV/EBITDA, or circa £5.90/share (vs 140p today).
CEO John Lyttle adding "We have gained significant market share during the pandemic. The current headwinds are short term & we expect them to soften when pandemic related disruption begins to ease. Looking ahead, we are encouraged by the strong performance in the UK, which clearly validates the Boohoo model. Our focus is now on improving the international proposition through continued investment in our global distribution network, capable of delivering >£5 billion of net sales."
Hence I remain a holder & plan to tuck the stock away, until (hopefully) better times return.
Finally wrt FY23, no 'official' guidance was provided, albeit sensible estimates appear to be for circa 7% sales growth (ie similar to H2’22) alongside 6%-7% EBITDA margins. Including 3% profitability erosion reflecting extra freight costs & lack of US/EU warehousing, and 11.5% marketing spend as a % turnover.