LON:ASC | Boohoo (BOO) Trading Update - Q1 (3 Months To 31 May 2021) - Discussion

15th Jun '21 by Paul Scott

54 comments 6039 reads

Good morning, it's Paul here with a separate article to discuss the Boohoo (LON:BOO) (I hold) trading update for Q1. We keep it separate from the SCVR now, because BOO is a mid cap, and is widely held/discussed by readers, so it tends to overwhelm the SCVRs.

PR title -

Building for growth and a sustainable future

Key data -

My views -

Overall 32% revenue growth is excellent, and well ahead of previous guidance of +25%
Core UK market performed exceptionally well, at +50% - this must include the start of the new brands recently acquired, so not all organic (the split is not given)
Rest of Europe revenues down -14%, which is a bit surprising. The pandemic is blamed, but I wonder if problems with dispatching & returns from the UK to Europe (re Brexit) could also be a factor? Rest of Europe is only 11.3% of total sales now. This should recover in time (e.g. setting up a warehouse in Holland might be a good idea, which some UK companies are doing apparently)
Key export market is the USA, which performed very strongly at +43%. This was 27% of total revenues in Q1. I wonder if BOO shares might attract some interest from USA investors at some stage? Growth companies get much higher ratings in American markets.
Note that constant currency "CER" shows that sterling's strength against the dollar has helped boost sterling reported revenues in the USA, and worsened revenues as reported in sterling in Rest of Europe, and Rest of World.

Gross margin - slightly down at 55.0% - still very respectable, and much higher than Asos (LON:ASC) (I hold) for example.

Net cash - of £199.1m, reduced due to heavy capex, including purchase of freehold office in Soho. Not an issue, the position looks fine to me.

ESG - publication today of latest report from Sir Brian Leveson. I'll read that later, thankfully it's only 13 pages!. The group is making "excellent progress" according to the trading update today. Personally I think this issue is waning now - BOO admitted there were serious shortcomings in its supply chain, and couldn't be doing more to rectify it. The latest issue in the press is use of plastics in man-made fabrics such as polyester. BOO is moving to recycled materials, so they're on…

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Nick94

15th Jun '21

Personally it'd probably detract from my opinion of Boohoo (LON:BOO) if they started paying a dividend.

I'd take it as an indicator that they're running out of places to allocate the capital effectively.

The flipside would be that, I'd rather them be honest about not being able to allocate incremental capital at the historical rates of return and pay it out as dividends, than to allocate it in sub-par projects etc. and dilute the existing ROCE.

The appeal of Boohoo (LON:BOO) for me is that there is a large runway for continued growth hopefully at the same (or better) ROCE.

Rusty2

ASOS (LON:ASC) It all sounds very good but it's easy to find reports that claim things are different and that is in the UK, who knows what goes on in China and some other countries. Seems a majority of their clothes are from China and the Indian sub-continent.

HHR

I am a massive boo fan but personally I think the 50% UK growth is disappointing given previous trend growth.

If we assume that Debenhams, Dorothy Perkins, Wallis and Burton are 100% UK brands then;-

1) When it acquired Debenhams boo said that existing annual online revenue was £400m

2) Annual online revenue for DP, Wallis and Burton weren't disclosed when acquired but must be significant, say at least £100m? (boo paid £55m for £400m of Debenhams revenue and it paid £25m for the Arcadia brands)

How much of that approx £500m of acquired UK annual online revenue would have found its way into today's Q1 UK numbers?

Personally I think UK organic growth in today's numbers will have been flat or down. But that's just an opinion for what it's worth and I still like the long term outlook and I am super-impressed with the 40% US growth.....

slopsjon

There is a blogger on twitter that just suggested the same, that UK organic growth could be negative this quarter.

Robert W

It is strange that they didn't break organic v inorganic out. Did anyone ask on the call?

moolahcoast

yes, they said the new brands were delivering above their 5% target that they aim for when integrating new brands but they weren't going into the details because the details are fluctuating week on week at the moment - but above.

they said they were pleased that so much of the growth was still coming from the original brands, which analysts might not have expected.

they haven't turned on the marketing spend on debenhams.com yet, but would be soon

recent weeks have seen a massive upturn on dresses with sales of dresses above pre-pandemic levels

Tortoise investor

I'm just travelling on the London underground and have noticed a number of Shein adverts now you've mentioned it - though £boo still outnumber. One to keep an eye on.

WhaleHQ

I compared boohoo's trust pilot reviews to shein's a while back and didn't see any tangible difference.

I'd argue that it is a major competitor that can do things cheaper than boohoo and react to trends just as quick.

GloucesterBob

Shock Horror Boohoo (LON:BOO) to open up a bricks and mortar shop (only the one mind)

https://www.telegraph.co.uk/bu...

For those who cannot access the full article, "Leading cosmetics brands typically demand that retailers have a presence on the high street before striking partnerships - a stumbling block for companies such as Boohoo, which only sells online."

abtan

Boohoo (LON:BOO) (no position)

Without breaking out organic/inorganic growth I'm not sure today's update really told us anything other than growth looks to be slowing, which seems strange given how many acquisitions have been made recently.

In any case, here are the Year-on-Year growth rates for any interested.

I didn't notice it until now, but the growth rate was actually at its peak just before covid started (+47% in Jan-Feb/"P11-P12" 2020).

Cheers

16th Jun '21

Not surprising, I think many customers buy clothes for nights out on the town or parties, in lockdown then they won’t be going out. There maybe some return to growth when venues such as nightclubs reopen.
I’m not convinced that some of the acquisitions were a good deal for Boohoo (LON:BOO).

Martin VT

I think there is a good news story for Boohoo (LON:BOO) on ESG….when they are ready to promote it. At present they are still bleeding out the negatives, under regular attack from ‘activists’ of various stripes who are working hard to regularly paint the worst picture, eg the current attempt to get Carol Kane removed from the Board - it won’t happened but it gives all concerned another opportunity to rehash negative news from 2020.

As for growth, well I think that for February to May, with almost all of their markets under Covid lockdowns to some degree, but in many areas physical shops open, these are superb results. Frankly the novelty factor for shops in April was clear to see with queues of young people waiting to get into clothes shops. So if Boohoo (LON:BOO) is till able to bring in over 30% growth, with the pressures of:

* Agenda for Change ESG programme and seeing through its business implications

* Integrating new acquisitions

* Developing new acquisitions

* Taking on whole new lines of business (eg beauty, children’s clothes and home)

* Covid Worldwide logistics issues

* Impact of Covid on clothing demand due to restrictions on social occasions and travel

* Rubbish weather in May, which normally dampens (pun intended) clothing demand

I see that as very creditable performance. When looking at these pressures, it is easy to see how the 2nd half of the year may see higher growth rates.

The new acquisitions are not a big feature yet. Eg for anyone who has followed the development of the Debenhams website will know that, it’s only started around late April/early May, it has been very much in development phase (still is) and there has been no marketing for the Debenhams. Boo take the (re)development of their acquisitions very seriously and indeed cautiously, and expect to build them up over time. If sales are already over target that’s encouraging as really the whole Debenhams story is only just beginning.

As well as the remnants of the ESG issue, this appears to be the other big issue for Boohoo (LON:BOO) - in my view their acquisitions these last 18 months have been fantastic…but they only show their true value after 1-2 years development. I will be very interested to see how Debenhams looks after it has had two Christmas periods. Until then I guess it’s a matter of faith either way…though even the most sceptical must agree that Boo have been virtually acquiring companies from their petty cash (albeit they do then put significant capital investment in).

GrahamScott

Good to see Director top up today….

Director's Dealing

boohoo (AIM: BOO), a leading online fashion group, announces that Iain McDonald, Non-Executive Director, purchased 56,000* ordinary shares of 1 pence each in the Company ("Ordinary Shares") at a price of 326.37 pence per ordinary share on 15 June 2021 and 44,000* ordinary shares at a price of 326.59 pence per ordinary share on 16 June 2021.

Andy Leadbetter

17th Jun '21

Agree, lack of volume indicates institutions are shunning it imo. I personally think it’s down to two factors:

1. ESG concerns.

2. There was a big capital raise at 340p last April (2020) - those investors are still in a loss and had the massive shock of the drop to c230p last summer. Therefore, I suspect that there is a lot of supply coming to the market at around 340p so this could move sideways for a long time yet.

A clear break through 360/380 on significant volume is required but the longer this sideways move happens the more likely it is to break to the upside on positive news in time, but only when this supply has stopped coming to the market.

Anything negative and it’s going to get hammered.

This is my largest position by far and I’m not at all comfortable with the price action to be honest.

I agree however I believe only Burtons/ DP etc were seen in the numbers above. There was minimal contribution from Deb. They refer to the phase the acquisitions are going through as a 'soft launch' where the marketing taps haven't been turned on yet.

The metrics from row and Europe are worrying. Management are putting this down to buyer fatigue which is reasonable enough however I'd wager shein have gained substantial ground on boo in both those markets so the question is was there an error in marketing, warehousing, product strategy or perhaps just price? Management should be able to address these issues and with FWD pe in the early twenties risk reward is more favourable than most out there. It's a watchful hold from me.

MichaelFBS

19th Jun '21

Another have a go at Boohoo (LON:BOO) article in the Ecotextile News:

https://www.ecotextile.com/202...

I don't subscribe but the intro reads:

"Workers' rights campaigners are raising concerns over the progress of fast fashion company Boohoo in addressing labour rights abuses in its UK supply chain.

On the day of the fashion brand’s AGM, three groups - Business & Human Rights Resource Centre, Labour Behind the Label and ShareAction - say they are not convinced by Boohoo's actions so far.

Boohoo launched its Agenda for Change programme, under retired judge Sir Brian Leveson, after it emerged that some of its suppliers in Leicester paid workers less than half of the minimum wage and failed to implement COVID safety measures."

I suspect these groups will only be happy when every capitalist wealth and job producing company ceases to exist but it still makes share price progression of my second largest holding (12.29% of portfolio) more difficult.

It will add to the wall of information discouraging institutions from investing in Boohoo and therefore creates a real head wind.

Will continue to hold but I suspect that I will reduce as it is creating a real drag on the portfolio.

Regards

Michael

Ben Graham but I agree very apposite in the case of £BOO. I am fairly certain the weighing will take over from the voting at some point but will it be before a. my patience runs out and b. after I have missed oppotunities in other companies?

Interesting that it seems fine by the woke community (i.e. I have not read of a campaign to persuade people to the contrary) to buy clothes from a company (Shein) based in the most human rites abusing country in the world that executes an estimated 2,500 people a year but fine to stick it to a company (Boohoo (LON:BOO)) that employs 100's (1,000's?) in the UK generates income, taxes and wealth for the UK and is taking seriously the need to clean up the rag trade.

We live in strange times.

Trident

Its surprising the small numbers that can leverage social media into bigger headlines. Activists tend to be more 'active' unsurprisingly. Then the wider media feed on it, and away we go.

Boohoo (BOO) Trading Update - Q1 (3 months to 31 May 2021) - discussion

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Paul Scott

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