Booming Boohoo targets the stratosphere with £3bn sales goal as brands outperform
There has been lots of speculation this week around Boohoo.com, not about whether it would make a profit and report rising sales or not, but about just how huge the increases would be.
And on Wednesday we learned that the rises were big, very big. In the year to February 28, its revenue almost doubled, surging 97% (or 92% currency-neutral) to £579.8 million. Gross profit rose as much as 90% to £306.4 million, while adjusted profit on an Ebitda basis was up 60% to £56.9 million. And pre-tax profits rose 40% to £43.3 million.
The news wasn't an undiluted triumph though, with the revenue increase achieved by the company sacrificing some profits in order to drive sales. But while the gross margin was down to 52.8% from 54.6% and adjusted Ebitda as a percentage of revenue fell to 9.8% from 12.1%, those margin figures remained undeniably strong.
Can the impressive performance continue? Trading in the first few weeks of the 2019 financial year “has made a strong start,” we’re told. Group revenue for the next financial year (FY19) is expected to rise between 35% and 40% – lower than the prior year but still better than most of its peers – with the adjusted Ebitda margin sitting between 9% and 10%, and capital expenditure of £50 to £60 million.
So that's the headline figures out of the way, but what actually happened last year? Well, the company clearly prospered both at home and abroad and while the 95% revenue growth figure for the UK lagged the 99% international growth, it was hardly a problem.
Of course, there were quite widely varying performances within the company's portfolio, given that its brands are all at different stages of their development. But none of those brands could be said to have underperformed.
The core Boohoo operation saw revenue rising 32% (29% on a currency-neutral basis) to reach £374.1 million. The 330bps drop in the gross margin to a still-strong 51.2% was driven by “planned investments in the customer proposition” that also dented the retail gross margin, sending it down to 53.4% from 56.1%.
The brand is clearly on a roll and its active customers last year rose 22% to 6.4 million, with shoppers attracted by its extended women's size ranges as plus size, curve, petite and tall performed “extremely well.” And they liked the new additions such as premium, soft tailoring, lingerie, maternity and athleisure that “contributed to revenue growth and to attracting a more diverse customer base.” And many of those new customers would have been male, as menswear “continued to perform very well.”
But the Boohoo brand isn’t the end of the story. The PrettyLittleThing performance was even better. Its revenue rose 228% to reach £181.3 million, although even here, the gross margin still dropped to 55.2% from 56.8%, with the retail gross margin falling ever so slightly to 57.2% from 57.3%.
Boohoo widened the PLT product range in the year to include premium categories, more beauty products and a shape range. It launched two celebrity collections with Kourtney Kardashian and Olivia Culpo, which “attracted significant global media interest across both traditional and social media channels.” And its new curve, shape, plus and petite ranges “proved popular with customers in all markets.”
PLT had 3 million active customers, up 128%, with those high profile celebrity associations key to driving traffic higher and to its international expansion. And it said that international markets “have enormous potential to grow given [the] relatively small market share in large opportunity markets including the USA, France and the rest of continental Europe.”
There were no comparison figures for Boohoo’s third brand, the acquired Nasty Gal operation, but the company said that revenue here was £24.4 million and the gross margin was a powerful 59.6%. Revenue and customer growth were both strong from start-up on March 1 last year.
Nasty Gal remains its smallest brand with only 400,000 active customers, although its revenue figure was greater than expectations and its international appeal outside of the US is growing.
INVESTMENT FOR GROWTH
And growth is what this company is all about. Boohoo is gearing up for a short-term future in which it sees itself having sales of more than £1 billion and has been investing in initiatives that will help this aim.
Key to this is its new Burnley distribution centre extension that will have a “significant element of automation to drive efficiency savings” and which is scheduled for operational use in early 2019.
The company also said Wednesday that PrettyLittleThing is to move into its own warehouse in the first half of the new financial year. This will add incremental sales capacity and will help it look beyond that £1 billion sales goal to a much larger target. The company said the PLT move represents "a significant milestone as we develop a distribution network capable of generating £3 billion of net sales globally.”
Clearly, Boohoo’s ambitions are big with co-CEOs Mahmud Kamani and Carol Kane saying they want to “lead the fashion e-commerce market”. At the rate the business is growing, they might just achieve that goal. Investors certainly expect them to as they sent the firm’s shares up over 17% in early trading Wednesday.
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