Boohoo shares slump as profit dwindles from pandemic highs
Boohoo’s shares sank as much as 15 per cent today, after the fast fashion retailer reported profits were down on last year’s pandemic highs, as increased operational costs slightly offset business gains.
The e-commerce giant announced this morning that revenue surged 20 per cent in the six months ending 31 August, with sales jumping to £975.9m from £816.5m in the same period last year.
However, profit before tax was down 5 per cent to £85.1m, sliding from what the retailer described as its “exceptional levels” of profitability in the same period last year, when Ebitda stood at £89.8m.
Earnings per share also slumped 15 per cent to 3.84 pence from 4.53 pence last year.
Boohoo had net cash of £98.4m at the end of the reporting period – a significant decrease of almost £250m from the £344.9m it held at the end of the first half last year.
Addressing the drop in profitability, the retailer cited £26 million of freight and logistics cost inflation relating to Covid during the first half of the year – about 270 basis points of margin – as a key impacting factor.
Other costs that held back profit included increased marketing investment in key markets to up to 500m new customers, new acquisitions, the integration and relaunch of four new brands including Debenhams marketplace, and two warehouse operational moves to support an extra £4bn of net sales.
Looking ahead, Boohoo said it expects full year sales growth of between 20 per cent to 25 per cent, implying sales growth of 20 per cent to 30 per cent in the second half of the financial year – much in line with the first half.
The retailer forecast its profit expectations for the full year down from previous estimates, to between 9 per cent and 9.5 per cent growth, down from 9.5 per cent to 10 per cent as previously guided.
It warned that the short-term cost headwinds that affected profit in the first half were likely to continue for the rest of the year, due to inflation in freight and supply chain costs, as well as “wage inflation” within its distribution centres.
“In the first half of this financial year, our teams have yet again delivered: integrating four new brands, launching two new warehouses and strengthening our infrastructure in a manner that will allow our multi-brand platform to scale as planned,” said CEO John Lyttle.
“Entering the second half of the year, the Group is well-positioned to accelerate its growth and our confidence in the Group’s medium term targets remain unchanged.”
High stakes
Once a British business darling in the wake of a stellar London IPO in 2014 and steep year-on-year growth since then, Boohoo’s share price performance today reflected the market’s steep expectations for growth.
“When it disappoints on the sales growth front, the market takes a very dim view of the company,” said Russ Mould, investment director at AJ Bell.
“That’s the situation now after the company reported second quarter sales growth of 9 per cent, significantly below the analyst consensus forecast of 28 per cent growth.”
Investors unimpressed
Beyond today’s results, Boohoo is facing an uphill battle as it attempts to recover its reputation after poor treatment of garment workers.
Its robust sales suggest Boohoo’s customers are less bothered by the company’s social impact than its shareholders, still lured in by its low prices – although some have been put off by the company’s scandals.
It hit the headlines for all the wrong reasons last year after media reports that factory workers in Leicester were being underpaid and not protected against Covid-19.
Boohoo appointed Alison Levitt QC to look into the supply chain allegations, who found they were “substantially true,” despite an initial denial from the firm.
But it’s not the same story for Boohoo’s shareholders, for whom this sort of reputational damage doesn’t disappear overnight, analysts have stressed.
“Even if consumers don’t care much about Dickensian working conditions, investors do appear to,” said Freetrade analyst David Kimberley.
“The company’s share price still hasn’t recovered to the highs it was trading at prior to those reports emerging about its poor working conditions — and that’s despite the firm producing several positive results in the intervening period.”
And as Boohoo looks to expand in the US, it may struggle to get investors on board while these scandals are fresh in people’s minds.
“As long as those accusations of poor behaviour are out there in the ether, fund managers will feel reticent about putting money into the company,” Kimberley added.