19 January 2023
If you are covering Boohoo’s latest trading statement, please find below a comment from Amisha Chohan, head of small cap strategy at Quilter Cheviot:
“Boohoo had a tough third quarter, but crucially sales were in line with expectations and the group maintained its full year earnings guidance. Over the past 18 months, the group has struggled with a plethora of headwinds including high inflation from gas prices and freight costs, increased return rates and slow delivery times to the US. Some of this inflation should ease, particular container costs, gas prices and the cotton price, which should help improve margins by this time next year.
“Underpinned by its agile test-and-repeat model alongside improvements in supply chain speed, boohoo is successfully managing its stock position despite the continued challenges in the trading backdrop. Inventory has been reduced and we saw elevated clearance activity at the end of last year, and as such management is expecting a gross margin improvement in the final period.
“Boohoo has also signed the lease for its new Pennsylvania warehouse, expected to launch with a phased approach over 2023 and early 2024, taking its brands into the US. We expect Boohoo will become much more active around Black Friday and other sales events to recruit new customers.
“Ultimately, the share price weakness over the past year relates to weak international sales, high inflationary pressures adversely impacting margins and a normalisation of online shopping trends post-covid. The founders own around 20% of the business, so there is always a chance they take it private.
“Boohoo has other risks too, particularly in its supply chain, which could result in the possibility of a US import ban and or reputational damage. Furthermore, the retail environment is cutthroat right now with inflationary pressures impacting on profits and competitors stealing marking share. We think it has the right structures in place to benefit from the economic recovery, when it plays out, but also mindful that there are ever present risks for the business.”
