Online retail giant boohoo warns of 12% reduction in annual revenues

Manchester online retail giant, boohoo, warned today that revenues for the current financial year are expected to decline by 12%.

In a trading update for the four months to December 31, 2022, the group revealed its turnover had fallen by 11%, compared with the same period a year ago, from £714.5m to £637.7m.

Its UK and rest of Europe regions saw 11% falls in sales, while the USA suffered a 17% decline and the rest of the world a 15% fall in turnover.

In early trading boohoo’s share price had fallen almost six per cent.

Offering guidance for the year ending February 28, 2023, boohoo said adjusted EBITDA is expected to be in line with market expectations, but revenues are expected to decline approximately 12% over the financial year, with an adjusted EBITDA margin of approximately 3.5%.

It said with recent positive signs in global supply chains, it expects to see some easing of disruption along with some relief to freight rates. Combined with the actions being undertaken on costs across the group, it is expected that overall cost growth begins to moderate as the year progresses along with an improved cost inflation outlook exiting the year ahead.

In relation to the period under review, inventory continues to be tightly controlled, with improving speed and flexibility within the global supply base and inventory significantly reduced, down 27% year on year.

Improvements in cash generation have been gained through tighter inventory management, cost control and an improved working capital cycle.

The group said there is significant liquidity headroom with more than £300m of gross cash at the end of December, with net debt expected to be less than 1x adjusted EBITDA at the end of the financial year.

There has been a successful launch of automation in the group’s distribution centre in Sheffield, with improvements to efficiency ramping up over the coming months in line with expectations.

Progress continues to be made with the US distribution centre, driving a step change in customer proposition, expected to launch with a phased approach over 2023 and early 2024.

Overheads continue to be managed tightly against a challenging economic backdrop, including a reduction in capacity in the UK distribution network, with action across the group focusing on reducing costs.

Chief executive, John Lyttle, said: “Performance in the period is in line with expectations and reflects the normalisation of the channel shift online over the last 12 months, but demonstrates the significant market share gains the group has made over the last three years.

“Looking ahead, whilst the demand outlook is uncertain due to macro-economic factors, cost inflation is expected to begin to moderate in the second half of the year.

“We have reduced inventory by 27% year on year and with this focus on careful inventory management, strong cost control and cash management, we will continue to drive operational and cost efficiency across the business. The group has continued to invest in key strategic priorities that will enable future growth, and the progress made gives us confidence that as macro-economic headwinds ease it will be well positioned to rebound strongly.”

Earlier this month the group revealed it was considering up to 100 job cuts at its London office.

Russ Mould, investment director at Manchester investment platform AJ Bell, said: “Just because boohoo’s latest update wasn’t much worse than expected, doesn’t mean it was any good either and it still seemed to spook investors.

“Sales are falling, margins are being heavily squeezed and the company has nudged revenue guidance lower.

“At least boohoo is making progress on the basics of retail, carefully managing its costs, cash and inventory so it can keep paying the bills and avoid being left with lots of unwanted stock which it then has to shift at a major discount.

“Longer term doubts about the whole online fast fashion model remain. One offshoot of the cost of living crisis could be a less disposable culture. Online returns can be a hassle and now COVID restrictions are no longer an obstacle, people might prefer to go into a shop and try clothes on before they purchase them.”

He added: “Boohoo may be hanging on to some of the market share gains it made during the pandemic, but there has certainly been a fightback from physical retail in the clothing space.

“Add on social and environmental concerns about the way its clothes are made – with boohoo having a far from unblemished record in its supply chain – and there are plenty of obstacles to winning back the market’s favour.”