Boohoo Group remains unfazed by Covid-19 – What the analysts say


By Beth Wright | 14 January 2021 just style Font size Email Print Boohoo said total group revenue amounted to GBP660.8m (US$902.06m) in the four months to the end of December, up from GBP473.7m last yearBoohoo


Group has raised its revenue guidance for the full year after posting a 40% sales hike for the four months to the end of December. Analysts note the fast fashion retailer has benefitted from further non-essential store closures in the UK which have renewed the shift of shopping online and hail its agility in pivoting away from partywear to the more resilient categories of athleisure and loungewear.

Emily Salter, retail analyst at data and analytics company GlobalData: "The Boohoo Group has continued to report enviable revenue growth in the face of Covid-19, with total sales increasing by GBP187.1m to reach GBP660.8m, though this marks a slight deceleration of growth versus that of the ten months to 31 December (42.3%). The group has raised its guidance for FY2020/21 revenue growth to 36-38%, far exceeding its previous guidance of 28-32%, as further non-essential store closures in the UK clashed with a key part of the golden quarter including Black Friday, enabling the group to benefit from a renewed shift of sales online through its reputation for promotions, trend-led styles and a leading online offer. "The loss of demand for partywear could have significantly dampened its sales during this quarter as this category would usually be an important component of its key brands' offer, so its impressive sales growth is testament to the group's agility that has enabled it to successfully pivot to the more resilient categories of athleisure and loungewear instead. However, its newer brands Karen Millen and Coast, traditionally known for their formalwear and occasionwear offers, will have been the worst hit by the lack of festive events and further office closures as a result of new lockdowns, with heavy discounting rife throughout the period. "Key competitor Asos is hot on the Boohoo Group's heels, with a 35.5% increase in UK retail sales for the same period as enhanced digital marketing including style edits with influencers and celebrities, and the launch of its more affordable in-house womenswear brand 'AsYou' helped it better compete with boohoo.com and PrettyLittleThing. As with Asos, the Boohoo Group is confident in its potential for significant long-term growth in the UK, with a new warehouse opening in April. However, its growth is strongest in the US, which now makes up 54.1% of total revenue as the brands continue to gain traction there. "The Boohoo Group has come under significant fire in the past year for the conditions in its supply chain, leading to the introduction of its Agenda for Change to implement recommendations of the independent inquiry. The group has made efforts to bolster the credibility of this programme, such as appointing KPMG to monitor it, with actions including removing 64 suppliers from its UK base, opening its own manufacturing facility in Leicester later this year, and publishing its first Annual Sustainability Report at the end of this financial year. Even though some of the group's actions are still controversial, such as PrettyLittleThing selling clothing items for less than GBP1 on Black Friday, these changes will help set a standard of greater transparency among fast fashion brands, boosting investor and consumer confidence." Greg Lawless, analyst at Shore Capital: "For us, there are two key considerations beyond the financials. The first surrounds corporate governance and the second about the costs of doing business in the EU, post-Brexit. One the first corporate governance issue we are happy that the company recognises that it needs to address its corporate culture, as part of a wider change programme and we have seen early signs that it will change its working practices and bolster the board. That said, we still need to tangible evidence of the change programme and in this regard believe it remains work in progress under John Lyttle's leadership of the business as CEO. "In terms of mainland Europe, the company has acknowledged that to minimise the impact on Brexit that it has implemented operational changes to its systems. We heard yesterday that Asos with a European hub will incur costs of GBP15m from extra tariffs. We note that Boohoo has said it expects "a small cost headwind" but we do wonder whether with 15% of its group revenues in mainland Europe and currently all distributed from the UK, what the real costs are. "Whilst trading remains robust, aided by lockdown restricts, we highlight the tough comparatives that the business will cycle in FY2022 and we need tangible evidence of the change programme, beyond intentions and words, together with a road map of how the company will navigate the increased costs of sourcing and exporting to the EU with a warehouse in mainland Europe."

Aneesha Sherman, analyst at Bernstein Research: "Sales beat: +40% top-line growth was above our expectations of 23.6% and cons. at 29%. The beat was driven by strength in the UK (+40%) and in the US (+52%). The re-launch of Oasis and Warehouse was executed this quarter, following the GBP5m acquisition of the brands in June, and this contributed to sales in Q3. This growth exceeds Asos' yesterday, which grew group sales at +23% and UK at +36%. "Gross margin slipped 50 basis points year-on-year to 53%, which was also 40bps below consensus expectations (52.7%). We would assume Boohoo has been affected by similar factors to Asos, namely high freight rates and an intense promotional season. "Warehouse extension announced. The project (UK3) will add an extension to current capacity by April 2021, intended to be used for the Nasty Gal, Karen Millen, Coast, Oasis, and Warehouse brands. No capacity has been given, though by our estimates these brands will generate GBP400m sales by the next full year, so we expect the capacity to be well above this.

"'Agenda for Change' progressing. The efforts to improve the UK supply chain were met with a few key milestones being achieved (e.g. the removal of 64 suppliers, which was already announced to the market). Oversight of the programme is given by Sir Brian Leveson, whose first report has been published alongside results. All eyes are now on the publishing of the supplier list: UK suppliers to be published in March; global in September."

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