A whopping rise in sales and profits at fast-fashion etailer Boohoo.com (BOO) came at a price - but clearly one worth paying. Gross margins dropped 480 basis points as the company trimmed prices and ploughed cash into making sure its delivery service meets the standards of the ever-demanding online customer. But chief financial officer Neil Catto said "it was worth the margin hit as the result had been better than we hoped". Not only did active customer numbers in the period grow by more than a quarter to 4.5m, but order frequency rose by 7.7 per cent and the sales conversion rate was also heading in the right direction. It's a simple but effective formula: more traffic equals more sales.
Because its moves to keep prices competitive and invest in its delivery service are attracting customers, management has been able to cut marketing costs to 6.3 per cent of revenue, from 12.6 per cent in the comparable half-year period. It is now using far more targeted marketing strategies and is leveraging the kudos that comes from celebrity or social media influencer endorsements. Some of the margin drop (130 basis points) was also due to a greater number of third-party sales, which are less profitable.
The momentum has created some bullishness, with the group adding three more mezzanine floors to its warehouse, expanding capacity by more than 50 per cent, and there's a second extension in the planning stage. Mr Catto said he was confident Boohoo would soon utilise the additional space and that's perhaps not surprising given it adds 100 new fashion pieces to the site every day.
Mr Catto said the group always hedged its currency exposure, but had augmented this process ahead of the EU referendum to give it greater protection. Sterling's weakness has afforded the group the ability to cut prices overseas as it sells more in dollars than it buys, but there's uncertainty about what impact sustained sterling weakness would have on the supply chain.
Analysts at Peel Hunt upgraded pre-tax profit expectations for the year to February 2017 to £26.1m, leading to EPS of 1.8p, up from £15.7m and 1.1p in FY2015.
| BOOHOO.COM (BOO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 97.3p | MARKET VALUE: | £1.10bn | |
| TOUCH: | 97.3-97.5p | 12-MONTH HIGH: | 101p | LOW: 32p |
| DIVIDEND YIELD: | NA | PE RATIO: | 59 | |
| NET ASSET VALUE: | 7.1p | NET CASH: | £67m | |
| Half-year to 31 Aug | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 90.8 | 6.3 | 0.5 | nil |
| 2016 | 127 | 14.4 | 1.0 | nil |
| % change | +40 | +129 | +124 | - |
Ex-div: na Payment: na | ||||
