Loss-making Boohoo smiles through the pain, predicts better year ahead
Expectations weren't exactly high for Boohoo Group’s, full-year results on Tuesday. So it was no surprise that the company said the 12 months to the end of February (FY23) saw revenue down 11% year on year to £1.768 billion, or -13% at constant exchange rates. However, revenue jumped 43% on a three-year basis.
The gross margin fell to 50.6% from 52.5% a year ago and from 54% three years ago.
Adjusted EBITDA at the Debenhams, Karen Millen, Nasty Gal and PrettyLittleThing owner fell to £63.3 million, a 49% drop against last year and -50% against three years ago. The figure was affected by lower sales, freight and logistics inflation, labour and energy cost inflation. Ongoing strategic investments also dented profits but it should benefit from these over the medium term
The adjusted loss before tax was £1.6 million compared to a profit of £82.5 million a year earlier, and the statutory loss before tax was £90.7 million against a £7.8 million profit this time last year.
The company chose to highlight the positives — significant market share gains over the last three years; successful delivery of automation in its Sheffield hub, “driving best-in-class operational performance and significant savings”; “substantial progress” made ahead of the phased launch of US distribution centre later this year; a “leaner, lighter, faster inventory position”, with stock down 36%; strong cash generation and more.
Looking at the figures in more detail, along with the overall 11% revenue decline, the UK was down 9% but up 61% over three years. International revenues were down 13% against last year, and up 22% on 2020.
The UK market remains its largest (62% of revenue). Return rates increased here (and in all other regions) above pre-pandemic levels due to the change in the product mix post-pandemic (occasionwear sees higher returns than loungewear does). The introduction of newer, higher-price point brands that have higher return rates also had an impact, as did macro consumer trends.
The gross margin reduced from 49.4% to 47.9% due to higher inbound shipping rates and product cost inflation.
Prices were raised across some product lines to help offset increased costs but it also “looked to ensure our offer remained competitive to consumers facing high inflation and other cost-of-living challenges”.
Boohoo said it’s “encouraged” by the UK sales performance of its more recently acquired brands and continued progression made by its Debenhams department e-store, as well as the significant gains in market share achieved over the last three years.
The US was below expectations, with revenue down 19% on the year, although growth over three years was 38%. Delivery times to the US “are still elevated compared to pre-pandemic levels,” which is hurting demand, although the situation is “improving slowly with growth returning in the final two months of the year”. The opening of its US warehouse in 2023/24 should boost the region’s performance.
Revenue in the rest of Europe fell 6% against FY22, but rose 10% compared to 2020. This was in a broader market that continued to be largely flat versus pre-pandemic levels. “Encouragingly, our more recently acquired brands are making strong progress, albeit from a low base,” it said.
And revenue in the rest of the world fell 2% but increased 3% against 2020. It saw “successful growth of marketplace and wholesale sales to partners in the Middle East” and markets such as Australia are starting to see improvements from reduced delivery times.
UPBEAT FOR THE FUTURE
The company had 18 million active customers in the year, up from 13 million since 2020, “with a target addressable market of up to 500 million potential customers”.
It’s still talking about “developing a global infrastructure capable of supporting in excess of £4 billion of net sales”, although clearly, achieving that figure is some way off.
It said it has made “significant progress with the Debenhams digital department store, with c.1,600 brands available on-site and a successful relaunch for Debenhams beauty”.
It also said cost efficiencies are driving simplification of its organisational structure and warehouse network, delivering material cost savings.
And it has made further progress on its sustainability strategy with the launch of the PrettyLittleThing marketplace resale platform and implementation of an “industry-leading” Fast Forward audit programme across all UK suppliers.
But when will it get back to growth?That's its “priority and focus” for the year ahead. It should be helped by investments in product development speed, logistics automation, and the opening of the local distribution centre in the US (its second-largest market) later in the year.
But revenues this year are expected to be between flat and a decline of 5%, albeit with an increased emphasis on profitable sales.
In the first half, revenues should decline by 10% to 15%. But in H2, it should return to revenue growth.
Adjusted EBITDA for FY24 is expected to improve to between £69 million to £78 million, in line with market expectations.
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