¨ Q1 financial highlights: Boohoo Group plc (LON:BOO) revenue of £445.7m is -8.3% YOY vs. a strong comp (Q1 FY22 revenue +32.1%), in line with Zeus’s forecast and management’s previously stated guidance. Gross sales growth remained positive +9% YOY but was offset by higher returns driven by normalisation of returns rates due to product mix change. In our view the impact of lockdown restrictions over the past two years limits the usefulness of assessing the Group’s progress on a YOY basis. Over the three-year pre-pandemic period revenue is up 75%, (CAGR of 20.5%), reflecting strong market share gains across its expanded, multi-brand platform. Q1 gross margin of 52.8% is 220bps lower YOY,versus Q1 FY22 that benefitted from high levels of full price sell through but is 240bps higher than H2 FY22 and improved through the quarter which we see as a strong performance given widely reported pandemic-related and inflationary cost headwinds.
¨ By region: UK revenue was 0.9% lower YOY versus an exceptional prior year comp (Q1 FY22: +50.0% YOY) but has improved MoM in the quarter, returning to growth in May. Normalisation of return rates continued to impact net sales in Q1, with gross sales +21% YOY as the Group’s proposition continues to resonate with customers, offset by higher returns. Growth in Q2 will benefit from less challenging comps (Q2 FY22: 19.3% growth) whilst the headwind of increasing returns rates is set to annualise in H2. In the US, revenue was 28.0% lower YOY as well flagged fulfilment issues continue to impact delivery times. Ultimately, this disruption will be resolved through the establishment of the Group’s first US distribution centre due to go live in mid-2023. This has the potential to enable next day delivery to c.50% of customers, and delivery within 3 days to c.90% of customers. ROE revenue decline of 8.8% reflects the impact of increased delivery times, partly offset by contribution from wholesale, whilst ROW saw 15.1% growth YOY, driven by demand from wholesale partner Alshaya in the Middle East.
¨ Strategic priorities: Progress has been made against action points aimed at optimising operations, including a 10-percentage point increase in short-lead time product mix YOY and improved inventory turn with lower levels of stock held vs. FY22 year end. Sheffield automation remains on-track with US DC due to launch mid-2023.
¨ Outlook: Guidance is unchanged versus 6 weeks ago with a return to growth anticipated in Q2 and growth rates improving in H2 as high return rates are annualised. We anticipate both revenue and profitability will be H2 weighted with Zeus forecasts unchanged today.
¨ Investment case: Over the past three years Boohoo has delivered significant and ongoing investment in its platform, brands, distribution, and people and now boasts a broader portfolio of 13 brands, targeting an addressable market of 500 million potential customers. Short term and transient cost headwinds, outside of the control of the Group should not negate from the long-term structural opportunity presented by the ongoing shift to ecommerce that BOO is strongly positioned to capitalise on. A resilient performance in the UK offers a blueprint for the international growth opportunity that we continue to believe exists, once cost headwinds stabilise.
¨ Valuation: Boohoo Group trades on FY23E EV/Sales of 0.4x falling to 0.3x, an EV/EBITDA of 7.2x falling to 5.3x and a PE of 26.2x falling to 16.4x, representing a c.60% discount to peer average, presented in exhibit 2. Our DCF model implies upside of 131%, based on conservative growth assumptions, well below the Group’s medium-term guidance.
Summary financials
| Price | 69.4p |
| Market Cap | £823.3m |
| Shares in issue | 1,267.80 |
| 12m Trading Range | 63.3p – 337.0p |
| Free float | 80.80% |
Financial forecasts
| Yr end Feb (£’m) | 2021A | 2022A | 2023E | 2024E |
| Revenue | 1,745.30 | 1,982.80 | 2,032.60 | 2,165.50 |
| y.o.y growth (%) | 41.3 | 13.6 | 2.5 | 6.5 |
| EBITDA | 173.6 | 125.1 | 111.8 | 140.6 |
| Adj. PBT | 149.9 | 82.5 | 44.3 | 70.6 |
| Adj PAT | 113.8 | 56.3 | 31.9 | 50.8 |
| EPS (p) ful dil. adj | 8.67 | 4.39 | 2.48 | 3.96 |
| Net cash | 276 | 1.3 | 15.2 | 75.8 |
| P/E | 7.5 | 14.8 | 26.2 | 16.4 |
| EV / EBITDA | 3.2 | 6.6 | 7.2 | 5.3 |
| EV/Sales | 0.3 | 0.4 | 0.4 | 0.3 |
Source: Audited Accounts and Zeus estimates
