Boohoo reports sharp drop in sales and profits

Fast fashion retailer Boohoo has reported a dramatic drop in sales and profits, but has issued bullish claims over its medium term recovery plan.

Top line sales dropped year on year to £1.769 billion, down 11%. UK revenues in particular were down 9% on the previous year, while international revenues dropped by 13%. Adjusted EBITDA has been reported of £63.3 million, down 49%.

The company blamed “Covid related cost pressures on raw materials and freight, and stock clearance” but insisted inventory has been reduced significantly and investment of £91 million in capital expenditure investment, “building infrastructure for future growth”, including an automation and US distribution centre in Sheffield.

John Lyttle, group CEO, has attempted to paint the results as a long term recovery, highlighting the market share figures and progress on a recovery plan in readiness for a recovery.

These include new wholesale partnerships in the UK, Europe, the Middle East and India and investment in a US distribution centre.

Lyttle said: “Over the last three years, the Group has achieved significant market share gains. Looking ahead, we are investing for the future growth of this business with automation, local fulfilment capacity in the US and building global brand awareness. We will deliver sustainable returns on these investments. We will continue to give our customers the latest trends, outstanding value and a great experience. Our confidence in the medium-term prospects for the group remain unchanged, and as we execute on our key priorities we see a clear path to improved profitability and getting back to double digit revenue growth.  Our boohoo family has continued to deliver for our customers and the business and I want to thank them for all of their hard work and dedication.”

The company expects profitability and growth to return in the next financial year ending 28 February 2024, but warns revenues are expected to be between flat and a decline of 5% vs. the prior year, with increased emphasis on driving profitable sales. In the first half, revenues are expected to decline by 10% to 15% as a result of this action being taken. Only in the second half of the year does the company expect to return to revenue growth “as it benefits from the investments being made across price, product and proposition under the Back to growth strategy”.

Adjusted EBITDA for FY24 is expected to improve year on year as a result of operational gains, cost efficiencies and cost deflation in our supply chain, with adjusted EBITDA margins of 4% to 4.5%, and adjusted EBITDA of between £69 million to £78 million, in line with market expectations. For FY24, capital expenditure is anticipated to be between £80 million to £90 million, and as a result of the actions we have taken on capex, working capital and costs, year-end net debt / adjusted EBITDA is expected to be approximately 1x, reducing thereafter, with the Group maintaining significant headroom on its long-dated £325 million Revolving Credit Facility.

Russ Mould, investment director at AJ Bell is prepared to give Lyttle the benefit of the doubt as their shares lifted on the news of better figures ahead: “It’s like the tables have turned, with previous winners now slipping back and laggards making a comeback. Previously a fallen angel, Boohoo certainly fits the bill after its share price jumped 15%. While it saw a decline in profits and margins, there was a sense that some analysts had been too pessimistic with their forecasts. Today’s figures have prompted some chunky earnings upgrades, which have acted as key drivers for the share price.

“A slump to an annual pre-tax loss shows how exposed it has been to rising costs coming out of the pandemic. However, the company has made real progress on its cash flow and with getting its borrowings down. Guidance for the 2024 financial year was also better than had been anticipated.

“Boohoo seems to be getting its house in order with a reduction in inventory and investments into automation and logistics. But the big unknown is how long it will take to revive growth in the business.

“Investors have fallen out of love with online retailers as growth has disappointed – so until that problem is sorted, it’s hard to say if Boohoo’s share price rally today is the start of something new or just a short-term, but potentially unsustainable bounce.

“For the markets the question will be, can the signs of improvement in Boohoo’s performance really take hold as it adjusts to new realities or are there more serious structural problems for the business?

“After all, the age group it targets tends to be more aware and engaged with environmental issues and this could impact the demand for Boohoo’s disposable fashion. Previous issues in the company’s supply chain do not help on this score either.”