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Boohoo keeps guidance unchanged after solid first-quarter sales, but margins a concern

Jefferies kept a 'buy' recommendation on Boohoo shares and raised its target price to 300p from 280p
Boohoo
Boohoo shares wavered in morning trading

Boohoo Group PLC (LON:BOO) left its full-year estimates unchanged after a 39% jump in first-quarter revenue but its shares dropped as some analysts raised concerns over the sustainability of its margins.

The online fashion retailer said revenue in the three months to the end of May rose to £254.3mln from £183.6mln a year ago with growth across all its markets including the UK, Continental Europe, the US and the rest of the world.

READ: Boohoo posts sharp rise in 2019 profit and revenue, led by growth at PrettyLittleThing and Nasty Gal

The Boohoo brand saw revenue rise 27% to £123.3mln while the group’s PrettyLittleThing business achieved a 42% gain in revenue to £112.1mln and the Nasty Gal website surged 153% to £18.2mln.

Margins slightly weaker 

The gross margin edged down to 55.0% from 55.2% last year as growth in the main Boohoo website offset weaker margins in Nasty Gal and PrettyLittleThing.

"The group has made a strong start to the year as we continue to disrupt and capture market share in the UK and internationally across all our brands,” said chief executive John Lyttle.

He added: “We have ambitious plans for the group, and continue to invest to ensure that our scalable multi-brand platform is well-positioned to disrupt, gain market share and capitalise on the global opportunity in front of us."

For the year, the company continues to expect revenue growth to be 25% to 30% with an adjusted earnings (EBITDA) margin of about 10%.

Boohoo shares wavered in morning trading. At the time of writing, shares were flat at 229p a piece. 

Boohoo continues to defy high street downturn, says analyst

Neil Wilson, chief market analyst at Markets.com, said: “Boohoo continues to defy the broader gloom on the high street thanks to its appeal among younger shoppers with the tight marketing focus around celebs and social media paying off. Boohoo is the Love Island and Coachella crowd in neon polyester.

“There are doubts though about whether it can maintain margins as well as this rapid sales growth, but for now it’s one of the brightest stars in another wise pretty dark sky. “

Jefferies raises target price 

Jefferies kept a 'buy' recommendation on the stock and raised its target price to 300p from 280p, saying the first-quarter sales were 4% above consensus forecasts.

The investment bank said Boohoo’s influencer-led marketing and product strategy is working well, with growth spread between new customers and repeat purchases.

It predicts a 29% compound annual growth rate (CAGR) in sales for the next three years and 30.5% CAGR in earnings per share.

Jefferies noted that margins only fell slightly and the company has room to invest should it need to.

 

 

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