BooHoo (BOO): a rare bright spot in an ugly UK retail environment

Wednesday, May 09 2018 by
8

UK retail is clearly still being beaten up in general, judging by the footfall data from the British Retail Consortium (BRC) for the month of March:

Year-on-year, footfall in March decreased by 6.0 per cent, a substantial decline compared to the positive rate of 1.3 per cent seen for March 2017 and the steepest year on year fall since the end of 2010. The 12-month average is -1.4 per cent.
There was no growth in Footfall for any UK regions, most notable declines (year-on-year) were seen in Greater London, -7.5 per cent, South East, -6.5 per cent, and in the East Midlands, -5.6 per cent. 
Growth fell in all shopping destinations: high Streets saw a decline of 8.6 per cent, retail parks of 1.8 per cent and shopping centres of 4.8 per cent.

Hardly a surprise then, that in addition to pressure on retail sales volumes on the High Street, that there are consequent price pressures too in April, again according to the BRC:

Shop price deflation held at 1.0% in April. Shop Prices have been deflationary for 60 months now and this is the deepest deflation since February 2017.
Deflation in Non-Food prices was deeper in April than in March: prices decreased at a rate of 2.2% compared to March when prices declined by 1.9%.

But there are some bright spots that investors can still focus on, notably in the growth areas of online clothing retail and also sportswear. 

The online distribution channel continues to conquer the UK retail scene, which is one of the most advanced online markets in the world, especially in non-food retail (e.g. electricals, clothing, shoes):

5af2ada40f9f7FT_online_nonfood_sales.png

1. Boohoo.Com (LON:BOO): I have to admit, this one an online stock that I bought very well post profit warning at around 30p back in early 2015, but subsequently sold far too early... And now I have finally worked up the courage to revisit this well-managed growth story, with the stock having retraced from a mid-2017 high of 267p to a recent low of 140p. 

Quite a wild ride, with the stock gapping up on April 25 on the back of the announcement of strong top-line growth (delivered in good part by their PrettyLittleThing teen clothing website) underlining Boohoo's FY2019 expansion target of 35-40%, combined with the outlook of a stable operating margin (9-10% EBITDA margin). 

Be warned: this is not…

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My opinions only, not investment recommendations: Please Do Your Own Research

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Boohoo Group PLC, formerly boohoo.com plc, is an online fashion retail group. The Company is based in the United Kingdom and has a strong presence in the United Kingdom, the United States, Europe and Australia, selling products to almost every country in the world. The Company owns the boohoo, boohooMAN, PrettyLittleThing and Nasty Gal brands. These brands design, source, market and sell clothing, shoes, accessories and beauty products targeted at 16-30 year old consumers in the United Kingdom and internationally. more »

LSE Price
218.6p
Change
2.3%
Mkt Cap (£m)
2,542
P/E (fwd)
40.0
Yield (fwd)
n/a



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8 Posts on this Thread show/hide all

buyhard 9th May '18 1 of 8
1

Personally I prefer NEXT- excellent online sales and the bricks and mortar stores are not doing too badly either. 

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Edmund Shing 9th May '18 2 of 8
1

Fair enough, and I know that Paul Scott certainly agrees with this view. For my part I am sympathetic to this more overt value call, having traded Next in the recent past lower down but getting out sub £50...

I must admit, the 50x P/E gives me a bit of a nose bleed, but the top-line and EPS momentum remains very impressive and of course the founding family retain big stake too, which I like...

Blog: The Idle Investor
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JohnEustace 9th May '18 3 of 8
3

Monday’s Woman’s Hour on Radio 4 was all about Women in Retail, including Carol Kane from BooHoo and the boss of N Brown.

My summary - there’s a massive generational shift underway to online, but it’s not enough any more to say you’re online and have a web store: for the BooHoo and Pretty Young Thing customers it’s all about social media influencers and Instagram. It’s now possible to purchase directly from Instagram. Businesses that can take advantage of that will be the ones to prosper, along with Facebook of course.

They managed to get about 40 minutes in before discussing how everything is men’s fault.

https://www.bbc.co.uk/programmes/b0b1p51p

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dfs12 9th May '18 4 of 8
1

Results out at the end of last month had sales of £579m predicted to rise 35-40% in the next year. Taking the lower 35% that makes £781m sales. When the results came out market cap was £1.7b. That puts Boohoo.Com (LON:BOO) on a forward price to sales of just over 2. Quite simply way too low for this type of business. Fast growing business with juicy fat margins usually have a price to sales of 5+. Decent but dull no growth, small margin businesses are usually around the 1.5 mark. Market cap has since risen to £2.1b. Using pure logic (since when has that had any relevance to the market) this one should rise 60% or more in the next 12 months.

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Edmund Shing 9th May '18 5 of 8

Also I would add that we really don't know where the limit is for the online market share of non-food retail sales - the UK is already ahead of the US in this regard, but may approach the Chinese 20% online share of overall retail sales. If so, then plenty of scope for the likes of Marks & Spencer to suffer (like Debenhams) and for Boohoo, Asos et al. online to take further share...

Blog: The Idle Investor
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hayashi22 9th May '18 6 of 8
2

I am very keen on BOO and agree that a proper valuation needs more than a look at forward P/E multiples. I could not understand the arguments put forward by a broker recently which seemed to boil down to concerns about capital spend going forward. It would be foolish of BOO management to neglect necessary spend to satisfy short term earnings, so I think it's best to treat your investment here as a long term play. The number of posters who have moaned and wept aloud about selling out of ASOS too soon seems apposite.

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Paul Robinson 11th May '18 7 of 8

Bought at an average of .3375p and sold at .7606 when they dipped, I may put back in what I made as I should have hung on!

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Investor1942 11th May '18 8 of 8

Having bought at 44p & 23p sold 20% at 90p the rest also qualifying for IHT exemption now , I am sitting tight.
The management investing in major upgraded warehouse facilities I think is very positive.

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