Boohoo shares up 17% on earnings guidance

Shares of Manchester-based online fashion giant Boohoo rose about 17% on Thursday after it published a trading update saying it expects to report adjusted EBITDA for the financial year ended February 28, 2022, of £125 million, in line with prior guidance.

Boohoo’s brands include Boohoo, PrettyLittleThing, Nasty Gal, MissPap, Karen Millen, Coast, Oasis, Warehouse, Wallis, Dorothy Perkins, Debenhams and Burton.

Boohoo CEO John Lyttle said: “The group has delivered strong growth over the last two years, which has translated into significant market share gains.

“We are confident that pandemic-related headwinds are short-term in their nature, and our focus is to ensure the business is well positioned for growth as these headwinds ease.”

Boohoo shares have fallen about 70% over the last year amid profit warnings and its work to improve its image following allegations of poor working conditions and wages at some of its suppliers.

In its trading update, Boohoo said: “Boohoo provides an update for the three and twelve months ended 28 February 2022.

“The group has delivered net sales growth in the fourth quarter of 7% (2 Year growth: 48%), and over the full year of 14% (2 Year growth: 61%), in line with guidance.

“In the fourth quarter, gross sales growth was strong (+26% vs. last year and +57% vs. two years ago).

“As expected, net sales growth in the quarter was impacted by higher returns rates year on year due to product mix.

“This is expected to continue in the first half of FY23.

In the UK, the group continues to deliver a strong trading performance with our leading proposition resonating with customers.

“International performance continues to be impacted by longer customer delivery times as a result of pandemic-related supply chain pressures.

“However, in the fourth quarter, the group saw a return to growth in ROW due to the positive contribution from wholesale.

The group expects, subject to audit, to report adjusted EBITDA for the financial year ended 28 February 2022 of approximately £125 million, in line with prior guidance issued in December and market expectations (company-compiled consensus adjusted EBITDA for FY22 of £125 million).”

Hargreaves Lansdown Equity Analyst Matt Britzman wrote: “The market’s very positive reaction to what is, on the face of it, simply an update stating how guidance will be hit shows the level of uncertainty surrounding Boohoo.

“Back in December guidance was lowered by a pretty decent chunk, with the group pointing to everything from higher freight costs to Omicron concerns.

“Rebasing guidance is rarely a good thing, but the positives from this update are that they look to have stabilised which will help instil more confidence from markets.

“That’s not to say the challenges are gone, far from it.

“International customers are still having to wait longer than they’d like to receive their orders, as supply chain issues linger on, which is hurting demand.

“And higher returns across the board are hurting the net sales figure, a headwind not expected to fall away until the 2nd half of the new financial year.

“Management expects these challenges to be short lived, which seems reasonable.

“But Boohoo has some work to do if it wants to regain investors’ trust.

“The completion of the ‘Agenda for change’, which was put in place to address issues with worker pay and wider conditions within supply chains, is a step in the right direction.”

AJ Bell investment director Russ Mould wrote: “Boohoo has had a horrific past 12 months with its share price falling by nearly 75%.

“It has suffered a few nasty profit warnings centred around slowing growth, and it is still trying to convince the market that its corporate governance standards are improving, through better monitoring of its supply chain and not getting its clothes made in sweatshops.

“In December it moaned about customers sending more of their orders back, disruption to moving goods around the world, and ongoing cost inflation.

“Supply chain issues continue to bite, and higher return rates look set to stay, at least in the near-term.

“Full year sales growth of 14% is at the top end of the 12% to 14% range provided in December.

“This provides some relief to the market that life hasn’t got worse for the company and might explain why the shares have rallied on the news.

“Fast growth has been the name of the game for Boohoo for so long.

“The rhyme might have to change given the financial pressures on consumers from rising inflation.

“With food and energy bills taking up a greater proportion of its target market’s take-home pay, there will be less money available for discretionary spending such as buying a new dress from Boohoo.

“Consumers who found themselves on furlough during the pandemic got a wake-up call about the need to have more money in savings and not to be reliant on debt.

“Hopefully the nation is getting better at forging positive personal finance habits, but that doesn’t work in Boohoo’s favour if its customers are now thinking twice before buying an item of clothing they may only wear once and then chuck.

“The company’s growth expectations were pared back after last year’s profit warning, and it is hard to see Boohoo achieving anything above low double-digit sales growth this year at best.

“A bigger concern is how Boohoo will cope with cost pressures which look like they could intensify. One can only expect profit margins to be squeezed further.”