Revenues fall and losses widen at online fashion retailer boohoo

John Lyttle

Interim sales have fallen and losses widened at Manchester-based online fashion retailer, boohoo, which warned that annual revenues could fall by as much as 17%.

Announcing its half year figures for the six months to August 31, 2023, it said, given the slower volume recovery than previously anticipated and the continued targeting of more profitable sales within its labels, revenues for the year ending February 28, 2024 are now expected to decline by 12% to 17%.

However, the group said it is confident of rebuilding profitability over the medium term.

Figures for the six month period showed boohoo’s turnover reached £729.1m, which was 17% down on the previous year’s £882.4m figure.

A pre-tax loss of £26.4m, compared with a loss of £15.1m, which marks a 74% deterioration.

However, announcing the results this morning, the group said they represented “substantial progress”, delivering key operational and strategic projects and an improvement in the adjusted EBITDA margin

It said revenues in core brands declined 10%, consistent with prior guidance for group revenues to decline by 10% to 15%, with more significant declines in its labels following a decision taken to target more profitable sales, which contributed to improved group profitability.

Investments in key strategic initiatives are underpinned by a significant cost savings programme, which chief executive, John Lyttle, said is worth up to £125m.

The group said it captured supply chain deflation and lower input prices, and reinvested these savings to drive faster lead times and lower prices for customers.

Average selling prices were down year on year in comparison with a UK clothing market which has seen price inflation of eight per cent.

It said its investment for future growth includes best-in-class logistics through automation in its Sheffield depot delivering record levels of productivity.

Its US distribution centre launched successfully, upgrading the proposition with next day and express delivery options into a key strategic market. Further brands are to be phased over the next 12 months.

And the group successfully migrated a number of its brands onto its in-house technology platforms, giving greater agility and cost savings.

Gross margin strengthened in the reporting period, despite significant investments into reducing lead times in the supply chain and into price reductions for customers.

Stock levels were reduced by £94m/35% year on year due to a leaner, lighter, faster inventory model.

And boohoo said it has a strong balance sheet and significant liquidity position of £290m which provide the necessary foundations to continue to invest in growth.

Chief executive, John Lyttle, said: “Over the first half we have made substantial progress across key projects and initiatives, including the launch of our US distribution centre.
“We have seen significant improvements in sourcing lead times and invested in pricing to reinforce our value credentials.

“We have identified more than £125m of annualised cost savings that support our investment programme.”

He added: “Our confidence in the medium term prospects for the group remains unchanged as we execute on our key priorities where we see a clear path to improved profitability and getting back to growth.”

Looking ahead, boohoo said today its focus remains on executing its back to growth strategy through disciplined investments across product, price and proposition.

In line with prior guidance, adjusted EBITDA margins are expected to be between four per cent and 4.5% given the strong progress made on gross margin and cost control. Adjusted EBITDA is expected to be between £58m to £70m. Capital expenditure is expected to be approximately £75m.

The group said its back to growth strategy will unlock the significant growth opportunity.

“The board’s confidence remains unchanged in rebuilding profitability over the medium term, generating a six per cent to eight per cent adjusted EBITDA margin while getting back to growth through: Continued investment in product, price and proposition, volume growth, international expansion, unlocking cost deflation; and cost control.”

Russ Mould, investment director at Manchester investment platform AJ Bell, said: “Boohoo’s name mirrors the noise long suffering shareholders will be making after the latest downgrade to guidance from the company.

“Revenue declines are looking markedly higher than previously forecast as the company faces a slower than anticipated recovery in volumes. A soggy summer may not have helped, though to its credit boohoo does not blame the weather, and the wider pressures on consumer spending are another factor.

“Another reason for the softer volumes tells a rather more encouraging story from a boohoo perspective. The company is showing a greater level of discipline. It is focusing on more profitable sales and it is, combined with investments in its logistics and technology platform, hoping to futureproof a business which has faced criticism over the efficacy and ethics of its supply chain in the past.

“Boohoo’s efforts are reflected in an improved margin performance and, importantly, the company has been able to achieve a tangible reduction in inventory, too, as it looks to claw its way back to profitability.

“The problem for boohoo is if volumes continue to decline then none of this will matter too much. It has to hope that its core demographic has not, for financial and environmental reasons, lost interest in the sort of cheap, disposable fashion which is boohoo’s calling card. Or, if it has, that boohoo can adapt its offering accordingly.”

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