Shares in online-only fashion retailer Boohoo (BOO:AIM) bounced 5.3% higher to 286p on Wednesday despite pulling guidance for the 2021 financial year as coronavirus uncertainty persists.
The retailer’s continued sector outperformance, a return to sales growth in April and the news it has ample liquidity to see it through the COVID-19 crisis put some much-needed smiles on investors’ faces.
SPARKLING OUTPERFORMANCE
Results for the year ended 29 February were excellent, showing 44% sales growth to £1.235bn, EBITDA margin expansion and cash balance growth.
The online fashion phenomenon delivered sales growth across all geographies and key brands boohoo, PrettyLittleThing and Nasty Gal, while the acquisitions of the MissPap, Karen Millen and Coast labels proved complementary additions to Boohoo’s scalable, multi-brand platform.
PULLING GUIDANCE
Encouragingly, Boohoo saw a strong end to the financial year and momentum was maintained in the first fortnight of 2021.
Understandably however, trading has been mixed since the middle of March as coronavirus fears and lockdown took their toll, with growth decelerating in the month’s second half. The positive news is sales have returned to year-on-year growth in April.
Russ Mould, investment director at AJ Bell, explained: ‘There were concerns that online fashion retailers would see a sharp drop in demand as the country went into lockdown, given that individuals no longer had a need for a new dress or shirt for a night out on the town.
‘This certainly seems to have happened to Boohoo which reported a dip in trading from mid-March. Interestingly it says sales have started to pick up again despite the ongoing lockdown. One can only presume that people are bored at home and simply want the feel good factor of spending money on something new.
‘There is also the consideration that people might want to look good for video conferencing, given the nation seems to have discovered Zoom and other video platforms.’
Boohoo issued a cautious outlook statement and pulled guidance for fiscal 2021, but unlike rivals ASOS (ASC:AIM) and Joules (JOUL:AIM), it has not tapped investors for additional funding.
Having run liquidity stress tests, management is ‘comfortable that the group has sufficient financial headroom, benefitting from its largely variable cost base, low cash burn rate and strong balance sheet with £241m of net cash at year end.’
THE EXPERTS’ VIEW
As Liberum Capital pointed out, ‘even in a scenario of full shut-down of the business until February 2021, the group will have sufficient funds to continue trading solvently, even before obtaining any government loans. The group’s healthy financial position gives us confidence in its ability to navigate through the near-term uncertainty.’
While the broker has withdrawn its forecasts and placed its recommendation under review, Shore Capital insisted ‘Boohoo is a very well-run company that had excellent momentum going into this crisis and a significant global opportunity over the medium term.
‘The strong balance sheet should allow the company to weather the current storm but it remains to be seen how its core focus on millennial customers will play out with many economic uncertainties, particularly around employment and consumer confidence, which may sharply impact on customer spending patterns.’
