Boohoo investors braced for bumpy ride ahead
BOOHOO’S full-year results were another painful read for investors with revenue taking a hit across all regions.
This included an 18% drop in the US, a market seen as crucial for future growth. Inflation is squeezing consumers’ wallets so it was not surprising customer numbers fell last year. Despite the retailer’s efforts, key customer metrics are still sliding in the wrong direction.
There are some positive signs for issues outside of the fashion group’s direct control. Supply chains are improving, freight costs are dropping and overall goods cost inflation is easing.
Boohoo aims to save more than £125million this year from these changes. However, the savings are being reinvested to keep prices low – a key part of the brand’s identity. The problem with this strategy is it is denting profitability. Without a turnaround in customer numbers and volumes, it will be tough to boost revenue and profits.
There are also Boohoo-specific problems. The group has spent heavily on increased capacity, especially abroad where there is more room for growth. But investment in international markets, such as the US, has not paid off yet. If sales do not pick up soon, these extra costs will hurt profits. Yet for those prepared to accept more risk, there is hope. Boohoo has a UK-based, fast-fashion supply network. Its model lets it react quickly to trends and demand levels. This helps sales and margins when volumes are in full flow. This is what keeps prices so low – it’s a unique selling point.
Boohoo’s acquisitions, such as Debenhams, are also starting to pay off.
It has launched a Marketplace feature, allowing third party sales on Debenhams’ site. This commission-based model earns less but it is high-margin. Other online stores have succeeded with similar set-ups. But how fast can Boohoo build scale and increase volumes?
Overall, concerns about the firm are growing. With customer metrics in the wrong direction and losses mounting, major challenges lie ahead. This has been reflected in the group’s reduced valuation. With so much uncertainty, investors should expect a bumpy ride.
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