Online fast fashion retailer Boohoo (BOO:AIM) upgraded annual revenue guidance after sales surged 40% to a better-than-expected £661 million in the four months to 31 December including Christmas with growth across all brands and geographies.

However, shares in the Boohoo-to-PrettyLittleThing brands owner softened 0.5% to 367.4p, after a good recent run, as investors picked up on a slight slowdown from the first half’s 45% growth rate and Boohoo warned of ‘a small cost headwind’ from Brexit.

RAISING REVENUE GUIDANCE

Following a strong peak trading performance, Boohoo raised its guidance on revenue growth for the year to 28 February 2021 to a range of 36% to 38%, up from its previous guidance of 28% to 32%.

The retailer also maintained adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) margin guidance for the year at ‘around 10%’, despite COVID-19-related cost headwinds, investments in keen prices and higher customer acquisition spend.

US ON A TEAR

In terms of the geographic performance, the UK division generated sales growth of 40% to £357 million, while international sales grew to £304 million to represent 46% of the business, with the US seeing the fastest growth, up 51% to £168 million.

Boohoo also announced it is close to finalising an extension of UK warehousing capacity with a new site set to open in April 2021, creating up to 1,000 jobs.

This site will be used by the Nasty Gal, Karen Millen, Coast, Oasis and Warehouse brands. Though the ambitious fast fashion purveyor has been mentioned as a possible bidder for other retail brands – notably those owned by the crumbling Arcadia empire such as TopShop and Dorothy Perkins – there was no update on this today.

Boohoo is working to repair a reputation sullied by last year’s supply chain scandal linked to factories in Leicester.

Overseeing the group’s ‘Agenda for Change’ programme to raise supply chain and corporate governance standards, Sir Brian Leveson has published his first report which acknowledges ‘the pace with which boohoo is making towards effecting change, while noting that recommendations remain work in progress’.

Boohoo has already removed 64 suppliers from its UK supplier list and said further investigations are ongoing.

WHY SHORE’S A SELLER

Despite the top line growth upgrade, broker Shore Capital reiterated its ‘sell’ rating on Boohoo. ‘Whilst trading remains robust, aided by lockdown restricts, we highlight the tough comparatives that the business will cycle in full year 2022 and we need tangible evidence of the change programme, beyond intentions and words, together with a road map of how the company will navigate the increased costs of sourcing and exporting to the EU with a warehouse in mainland Europe.’

AJ Bell investment director Russ Mould said the decision to leave margin guidance unchanged, despite Boohoo ‘benefiting from a period which saw a proportionally lower level of returns as the prospect of queuing at the post office became less appealing due to Covid, is telling’.

STILL MORE TO DO?

‘The human and environmental impact of cheap, disposable fashion could increasingly jar with its youthful demographic for whom social and green issues are important,’ said Mould.

‘These issues are increasingly important to the market too and despite making some changes to its board, Boohoo also faces shareholder pressure over corporate governance.

‘Notably it lost a mainstream auditor in PwC, which quit over reputational fears, and appointed a much smaller accountancy firm PKF Littlejohn before Christmas. The company still has a lot more to do to fix these issues.’

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Issue Date: 14 Jan 2021