Strong trading performance – sales up 78%
Successful fund raising – investors grab £50 million of new shares
Boohoo.com makes twice the margins of ASOS
Russ Mould, investment director at AJ Bell, comments:
“A better-than-expected 78% jump in first-quarter sales on a like-for-like basis is putting a smile on the face of investors in Boohoo.com today, as they gladly buy £50 million of new shares in the firm (and an additional 3% stake off management) to help fund future growth.
“The headline sales growth number for the first quarter of 106% also beat analysts’ forecasts, as the newly-acquired PrettyLittleThing and NastyGal operations began to strut their stuff.
“The only potential source of concern is the admission that gross margin at the core Boohoo brand has fallen to 53.9% from 56.2% for the first-quarter, although management puts this down to planned investment in the business (in what remains a very competitive market place).
“Further expenditure is planned in the form of a new warehouse in Burnley and investors have snapped up 22.7 million new shares to fund the expansion scheme.
“In a sign of just how well today’s trading statement was received, the new shares were priced at 220p, a mere 0.3% discount to yesterday’s closing mid-price, and Boohoo was trading at 240p, a near-9% advance, less than two hours after the deal had closed.
“Even allowing for the reduced margins the stunning sales growth means analysts are likely to be raising their earnings forecasts – not least because Boohoo is already making profit margins that are twice those of online peer and rival ASOS.
“There are three possible reasons for this margin outperformance:
Gross margins (the profit after raw material costs) are superior, which could be down to sourcing and also much faster stock turn from a narrower product range, which will cut the need to discount unwanted stock. In 2016, stock turn was notably higher at Boohoo, at 3.9 times to 2.8 times at ASOS, while days inventory on hand was 93 compared to 130 at ASOS. In addition, Boohoo sells own-branded product, so there will be less of a cut given to branded goods providers, relative to ASOS.
Boohoo spends less on marketing. Selling, general and admin expenses came to 23.3% of sales at Boohoo in 2016, compared to 30.7% at ASOS. A lot of Boohoo’s marketing work is done for it by (happy) customers, via their vlogs, blogs and social media.
Boohoo also makes a small profit from warehouse management services, whereby it rents out pallet space on a weekly basis (and will be paid for the full week, even if the pallet is only there for a day). It will be interesting to see how this develops given the need for additional warehousing space for its own goods going forward.
12-month period to
28 February 2017
31 August 2016
Profit and loss account – margin comparison
Cost of sales
Distribution costs as % sales
Admin costs as % sales
Other income as % sales
Depreciation/amortisation as % sales
Salary costs as % sales
Number of staff
Cost per staff member
Balance sheet efficiency
Key performance indicators
Number of orders
Conversion rate to sale
Average order value
Number of items per basket
Source: Company accounts. ASOS figures exclude £20.9 million extraordinary charge within admin costs to cover costs of withdrawal from China.