Fashion retail is in the doldrums. But one clothing retailer that’s bucking the current trend in its industry is Boohoo Group (LSE:BOO).
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Founded in 2006, the UK-based online retailer has become hugely popular with its target market of 16-30 year-olds. It offers its own-brand fashion clothing and sells over 30,000 products across multiple brands. Boohoo also has a history of buying up failing labels and folding them into its business. Two of these brands include Karen Millen and Coast.
It has used social media platforms very well as part of its marketing strategy with campaigns including celebrity endorsements and celebrity clothing ranges having contributed to its meteoric rise. At the time of writing, Boohoo has 6.5m followers on Instagram, over 500k on Twitter, and 3.3m likes on Facebook. But the biggest part of its success story is making fashion that responds to trends quickly at prices almost anyone can afford.
Performance and Covid impact
In the past five years, Boohoo’s share price has increased by over 1,000%. When stock markets crashed, its share price fell nearly 50% from 316p each to 157p. Yet it currently trades at over 350p per share, so has clearly recovered from the market crash.
Why the fast bounce-back? At the end of April, Boohoo announced full-year results up to 29 February. Group revenue was up 44% across all its brands. There was strong revenue growth across both UK and international markets. Its free cash flow was up £50m compared to the previous year and stood at £240.7m. And the number of active customers it had was up 28% on the previous year, to 8.9m.
Even so, some uncertainty remained. Boohoo said in its announcement that it could not yet provide guidance for the next financial year due to the pandemic. This is understandable. But uncertainty could be Boohoo’s best friend over the long term. Why is that? Acquisition opportunities, that is why. I feel that there will be more casualties in the fashion industry due to this lockdown. Oasis, Warehouse, Laura Ashley and Cath Kidston have already gone into administration. I think there could be others that may present Boohoo with further acquisition opportunities and the company has already raised hundreds of millions of pounds in extra cash to pounce when opportunities arise.
Boohoo bucking the trend
Boohoo’s target market is also what sets it apart from other clothing retailers. The younger fashion-focused demographic forms the majority of its customer base. These customers are in lockdown but many are still spending.
They may be buying more casual clothes rather than party outfits. But they are buying from Boohoo and the firm is profiting. This is great for shareholders and potential investors alike.
Yes, Boohoo is expensive by conventional standards, but I feel this is not an issue based on its past performance and further growth potential. Year-on-year revenue and profit growth, plus its ever expanding geographical reach show Boohoo is heading in the right direction.
I feel there is more to come in the Boohoo story and would consider it as a long term-growth pick for my own portfolio.
