Full year results from online fast fashion retailer Boohoo (BOO) gave investors very little reason to be cheerful.
While in the 12 months to 28 February 2022 revenue was up 14% year-on-year to £1.98 billion, pre-tax profit fell from £124.7 million to just £7.8 million as distribution costs rose and the level of customer returns increased.
The company also warned to expect no revenue growth in the first half of the current financial year and low single digits growth for the year as a whole. This may ring alarm bells with shareholders as businesses looking for a stronger second half to get them out of trouble often come a cropper.
The adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) margin is expected to be between 4% and 7% compared with 6.3% in the year just gone, reflecting the unpredictability of its cost base.
‘THE BOOHOO BUBBLE HAS BURST’
The company is looking to source more of its products from Europe and North Africa to avoid the elevated air and sea freight costs from Asia.
All these negative factors contributed to a 16.4% fall in the shares to 66.7p this morning, extending its losses over the last 12 months to almost 80%.
Independent research outfit Third Bridge’s senior analyst Harry Barnick commented: ‘Our experts say the Boohoo bubble has burst - with market growth expected to soften and costs rising across the world, both sales and profitability are at risk.
‘Boohoo's customers are faced with an unprecedented rise in the cost of living and seem set to cut back on fast fashion spending as a result.
‘Shein's growth has compounded Boohoo's problems, as the Chinese competitor is taking share of wallet from the British fast fashion customer.
‘Freight and container costs remain high and gross margins erosion is an unwelcome byproduct of this challenge.
‘ESG factors are front of mind for investors and customers alike. Boohoo's fast fashion model and poor track record of production are a key risk in this context.’
