Boohoo still chasing the American dream
TREACHEROUS trading conditions on the high street have seen a number of fashion retailers struggle recently.
A profit warning from ASOS sparked concern the slowdown was starting to hurt online, too, but Boohoo put those worries to bed last Tuesday.
Once exchange rate effects are stripped out, Boohoo’s fourth-quarter revenues rose 43 per cent, reaching £328.2million.
Group revenue growth for the full year is now expected to be 43 to 45 per cent, ahead of previous expectations.
The majority of that growth is coming from the shrewd purchases of Pretty Little Thing and Nasty Gal.
The new brands have helped the group crack America, and that opens up a potentially huge market. Another thing in Boohoo’s favour is its exclusively online presence.
That means it can stock small quantities of lots of different styles, and ramp up orders of the most popular.
This “test and repeat” model means Boohoo is ideally placed to keep up with the frantic pace of fast fashion.
Fast fashion comes with a high number of returns, though. The costs associated with processing returns on an average order size of just £43.41 means operating margins are unlikely to move much beyond their current 7 per cent to
8 per cent level. The cost of American expansion isn’t helping either. It’s important margins are kept firmly under control if investors are to believe the group hasn’t bitten off more than it can chew.
Being in a growth phase also means there is no dividend on offer just yet. It makes sense to reinvest profits back into the business, but this is something income-seekers should keep in mind.
However, the fact remains that Boohoo simply hasn’t come down with the same cold as other retailers. While it’s true that consumers are reining in spending, those same punters can’t quite say no to a site that often sells dresses for under a fiver.
We think Boohoo has a lot to shout about. There are real pockets of opportunity abroad – even if seizing them is expensive. And while customers want to buy clothes at the same price as a meal deal, Boohoo will keep selling them.
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