Boohoo sales drop for first time ever, but expects a Q2 return to growth
Boohoo did something it wasn't used to on Thursday, it delivered a trading statement that showed falling sales. In the three months to 31 May, total sales fell to £445.7 million, down 8% year-on-year.
But compared to the same quarter prior to the pandemic, that was actually a 75% increase.
Revenue in the UK in the latest quarter fell 1% to £272.1 million, but was up 94% against the pre-pandemic period. In the rest of Europe, revenue fell 9% to £49.6 million and, again, was up a healthy amount (30%) against that pre-Covid quarter.
In the US, revenue fell a sizeable 28% to £95 million but rose 85% compared to the pre-pandemic three months. And in the rest of the world revenue jumped 15% to £29 million while being up 20% against the pre-Covid quarter.
The company said that the comparisons with a year ago looked weaker because lockdowns had driven particular strength in its operations in the year-ago period. But it highlighted that three-year comparison, which showed very healthy growth overall.
And it said that as expected, “gross demand growth remained positive against tough comparatives, with net sales impacted by the ongoing normalisation of returns due to product mix change”.
That was a point online rival ASOS also made on Thursday as it blamed a very high rate of returns for a profit warning.
Boohoo meanwhile, said UK sales improved month-on-month in the period and returned to net sales growth in May. Underlying gross demand remained strong (+21%) “as our leading proposition continues to resonate with customers”.
But its international performance “continued to be impacted by increased delivery times, although wholesale drove growth in [the rest-of-world] and contributed to [the rest-of-Europe] performance.
The gross margin for the three months was 52.8%, down 220bps against a strong prior year comparative, but up 240bps against the second half of the previous financial year. It improved through the quarter.
Boohoo said that it has been taking action focused on optimising its operations and “best positioning itself to rebound strongly as pandemic-related headwinds ease”.
It has continued to increase sourcing from near-shore markets to reduce exposure to elevated inbound freight costs, with a 10 percentage point increase in the short-lead-time product mix compared to the same period last year.
Inventory was also tightly controlled in the quarter, with lower levels of stock compared to year-end, plus improvements in inventory turn and increased supply chain flexibility.
Continued progress has also been made on key strategic projects, with the automation project in Sheffield still anticipated to go live in H2 of this financial year. The group has also signed a lease for a new distribution centre in Elizabethtown, Pennsylvania, to support its international growth ambitions and “transform the customer proposition in a key focus market, with go-live still anticipated in mid-2023”.
And wholesale continues to scale with one UK partnership launched in the quarter.
So where does that leave the Debenhams, Karen Millen and PrettyLittleThing owner in terms of its expectations for the year? Unlike ASOS, it didn't issue a profit warning and it said that its outlook for the year ending 28 February 2023 is unchanged.
Revenue growth for FY23 is expected be in low single-digits, with a return to growth in Q2 and growth rates improving in the second half as it annualises high returns rates and normalising consumer demand.
Adjusted EBITDA margins are expected to be between 4% and 7%, in line with prior guidance, “as the group continues to be affected by pandemic-related and inflationary factors that negatively impact costs within its supply chain and international competitive proposition, offset to some extent by the financial benefits from our strategic priorities and leveraging of overheads”.
CEO John Lyttle ended on an upbeat note and said he’s “pleased with the progress we are making towards our strategic priorities, which is already having a meaningful impact operationally within the business. We have seen promising signs from the group's sales performance in the UK, which has improved month-on-month in the period and we are looking ahead towards our key summer trading season as holidays ramp up and customers look to the latest fashion from across our brands.”
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