Surging Boohoo sheds tears of joy
25th April 2018 12:28
Recent scepticism towards was in danger of sounding a little hollow today as the online fashion retailer smashed City forecasts and reported further progress in its target of achieving £3 billion in global sales.
Shares in the AIM-listed stock have struggled in recent weeks amid concerns about margins and fears that the stock has got ahead of itself after a spectacular 2016 and 2017 in which it surged by more than 400%.
But the market swung back behind Boohoo today with a share price rise of more than 15% as the company highlighted the "great progress" enjoyed by the recent brand additions PrettyLittleThing and Nasty Gal.
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Manchester-based Boohoo, which has been successful in using social media and celebrity endorsements to appeal to the 16-30 age range, saw revenues almost double in the year to February 28 to £580 million. Underlying earnings were 60% higher at £56.9 million.
Boohoo also forecast revenues growth of up to 40% for the current financial year following a strong start to 2018. Joint house broker Jefferies said the outlook was much stronger than the market had been expecting, prompting it to lift its underlying earnings forecast by 4% to £79 million.
The team at Jefferies has a price target of 280p, which would represent a return to and above the record levels seen in June and September last year after a string of earnings upgrades from the company boosted broker sentiment.
Source: interactive investor Past performance is not a guide to future performance
Since then, concerns over margin pressure caused by the cost of investing in price and promotions have taken the shine off Boohoo's reputation as one of AIM's top performers. A forward price/earnings (PE) above 50 added to concerns that the stock was overpriced.
The group believes it can achieve a distribution network capable of generating £3 billion of net sales globally. In a sign of the changing dynamics of the retail sector, rival recently declared its intention to achieve £4 billion of net sales as the world's "number one destination for fashion loving 20-somethings".
To support this growth, Boohoo is continuing to invest heavily in marketing, technology and warehouse automation in order to generate economies of scale.
A new building at the group distribution centre in Burnley will be ready for use in early 2019 and sufficient for an operation capable of generating over £1 billion in net sales. Pretty Little Thing is also to move into its own warehouse, while Nasty Gal is being supported through new offices in Manchester and Los Angeles.
Analysts at joint broker Zeus said Boohoo was now trading on a 2019 enterprise value to earnings multiple (EV/EBITDA) of 22.5x, which falls to 17.7x in 2020.
They highlighted the company's much improved year-end cash position of £133 million, which they said supported the management's ambitious growth targets.
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