Boohoo's current problems are "entirely transitory" says management
Boohoo Group may have been hit by supply chain scandals, delivery hold-ups, a plummeting share price, and questions of whether it can maintain its crown as an online fast fashion market leader, but its problems are “entirely transitory”, according to management, an analyst note said on Thursday.
Jefferies said the company had attended its Pan-Euro Mid-Cap Conference this week and the takeaways from the group meetings were that the headwinds are set to ease... but not yet.
And those headwinds are certainly considerable. As management reiterated, it had faced “sharply higher inbound and outbound freight costs, a year-on-year step-up in returns rates, international revenue shortfalls from an impaired delivery proposition, and resultant impacts of inefficient marketing and higher clearance”.
But the note said: “Crucially, management continues to view these factors as almost entirely transitory and remains firm in its belief that Boohoo can return to being a business delivering +25% [annual] sales growth and an EBITDA margin of [around] 10%.”
While the company is budgeting for these issues to “largely persist” in the current financial year (FY23), the inbound freight increases and the higher level of returns are “set to annualise by the half year”.
The company is taking a certain number of actions that are within its control, such as “buying tighter, balancing sourcing regions to manage the mix of sea/air freight, and looking to bring more sourcing closer to the UK to reduce cost volatility and shorten lead times”.
But it’s limited in what it can do for this year until external issues (such as logistics problems) improve and year-on-year comparisons become easier.
Jefferies also said that management highlighted the development of Boohoo's wholesale business as “providing a different route for growth”.
The company also emphasised the actions it’s taking to support the margin, including reduced clearance, more efficient marketing spend (“likely to run at 9-10% of sales vs. c.11.5% in FY22”) and the Sheffield automation project that should drive cost efficiencies.
The analysts “remain positive” on the business’s prospects and “like management, continue to believe that the pressures facing Boohoo are almost entirely transitory in nature, even if the reversal of those pressures will clearly take time”.
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