Boohoo bucks gloomy retail picture with spectacular financial year

Boohoo, the Manchester-based fashion brand, bucked the doom and gloom of the retail sector after almost doubling revenues and reporting a 40% rise in pre-tax profits for the year to February 28, today.

Turnover forged ahead by 97% £579.8m, while profits before tax jumped from £30.9m last year to £43.3m.

Sales growth was strong across all its geographies, with the UK showing a 95% increase and international achieving a 99% improvement.

The group’s balance sheet shows net cash of £133m, up from £58.4m a year ago, following a £50m share placing, bolstered by robust operating cash flow of £76.2m, compared with £36.1m a year ago.

Founded in 2006, the group started life as boohoo.com, an inclusive and innovative brand targeting young, value-orientated customers.

In early 2017 the group extended its customer offering through the acquisitions of the vibrant fashion brand PrettyLittleThing, and free-thinking brand Nasty Gal.

This investment proposition has helped the group grow from a single brand, into a major multi-brand online retailer, leading the fashion eCommerce market for 16- to 30-year-olds around the world.

Today the boohoo group sells to 9.8 million customer accounts across all its brands in almost every country in the world.

The boohoo brand reported revenues of £374.1m, which was 32% better than the previous year; PrettyLittingThing saw sales jump 228% on a 12-month comparative period to £181.3m; and Nasty Gal posted strong turnover from start-up on March 1 last year of £24.4m.

Active boohoo customers rose 22% to 6.4 million; PrettyLittleThing drove active customer levels by 128% to 3 million; while Nasty Gal now serves 400,000 customers.

During the year the group extended its Burnley distribution centre, enabling it to serve a £1bn+ turnover future group operation.

The group revealed today that trading in the first few weeks of is 2019 financial year has made a strong start.

Group revenue growth for the next financial year is expected to be 35% to 40% with an adjusted EBITDA margin of between 9% to 10% and planned capital expenditure of £50m to £60m.

Looking beyond the current year the group says it will continue to lead the market on value, service and proposition in all its key geographies.

And while this will require a continued investment in people and infrastructure, the group said it believe that the benefits of its investments in marketing and warehouse automation will generate economies of scale to allow it to drive sales growth of at least 25%, while maintaining a 10% EBITDA margin.

Joint chief executives Mahmud Kamani and Carol Kane said today: “The group made great progress during the year, integrating a new company, PrettyLittleThing, and a new brand, Nasty Gal, into the boohoo group.

“Revenue from boohoo continued to grow strongly, whilst there has been an exceptional performance from PrettyLittleThing, and Nasty Gal exceeded our estimates in its first year.

“Against a backdrop of difficult trading in the UK clothing sector, the group continued to perform well, gaining market share in the expanding online sector.

“Our international business showed higher growth rates and we are pleased with its gathering momentum.”

They added: “Our strategy will remain focused on providing the best fashion at great prices, coupled with excellent customer service.

“To this end we have a plan of continuous investment in systems and technology to ensure we offer an optimal online shopping experience.

“International expansion will continue as we add more country-specific websites, refine our brands’ customer proposition and raise brand awareness through marketing and social media.

“Our extended distribution centre, which will have a significant element of automation to drive efficiency savings, is scheduled for operational use in early 2019.

“We have announced this morning that PrettyLittleThing is to move into its own warehouse in the first half of the financial year 2019.

“This brings incremental sales capacity in addition to that in our Burnley operations, will help underpin our infrastructure needs and add further operational flexibility for the group.

“It represents a significant milestone as we develop a distribution network capable of generating £3bn of net sales globally, in line with our vision to lead the fashion eCommerce market.”

Commenting on today’s announcement, Russ Mould, investment director with Manchester-based investment platform AJ Bell, said: “Are investors interested in growth or profitability?

“After revealing pressure on margins at its first half results in September, highly rated online retailer Boohoo saw its shares drift around 40% lower.

“However, it bounces back in fine fashion this morning after reporting a near doubling of revenue to £579.8m for the full year.

“At the same time the downward pressure on margins continues – pre-tax profit is up by a more modest 40%.

“Warren Buffett mentor Benjamin Graham once argued ‘In the short-term, the stock market is a voting machine but in the long run it is a weighing machine.’

“Meaning that fashionable investments may hold sway for a period but eventually earnings and cash flow must be delivered to sustain the valuation attributed to a stock.”