The Boohoo (LSE: BOO) share price is down in early trading this morning despite the AIM-listed star issuing yet another very positive set of numbers to the market. Why is this happening?
Why is the Boohoo share price falling?
As I say, it’s nothing to do with recent trading at the Manchester-based business.
Thanks in part to a rise in online shoppers caused by the pandemic, BOO made £816.5m in revenue over the six months to the end of August. That’s 45% up on that achieved over the same period in 2019.
Importantly, this growth was seen in all markets in which it operates. In the UK, 37% more revenue was generated. That’s mightily impressive given that this is the company’s most established market.
However, it’s the international sales figures that really show just how quickly this company is grabbing customers. Overseas revenue jumped 55% in total, including a superb 83% rise in the US. All told, nearly half of revenue is now generated outside the UK. That level of earnings diversification should be very comforting for anyone already holding the shares.
If you think all these sales mean Boohoo is making money hand over fist, you’d be right. Pre-tax profit for the trading period was £68.1m. That’s an increase of 51% from 2019.
Uncertain outlook
Based on today’s results and post-period-end momentum, BOO now expects revenue for the year to be 28% to 32% higher. Previous guidance was for a 25% rise.
Normally, such a prediction would be lapped up by the market. The fact that the Boohoo share price has fallen appears to be due to the cautious tone adopted by management. In today’s statement, the company said that economic uncertainty could lead to reduced public spending. It also warned that the number of clothes being returned could return to more normal levels following a reduction seen over the lockdown period.
Another reason for Boohoo’s decline today is the likely increase in capital expenditure by the company. Between £80 and £100m will now be devoted to improving its facilities and undertaking IT projects — higher than originally thought.
Marketing spend will also rise, perhaps in an effort to repair any reputational damage from the recent investigation into the company’s suppliers. Today, CEO John Lyttle simply said that the company had “established a programme to implement the recommendations of the report to make substantive, long-lasting and meaningful change”.
Buy and hold
Before this morning’s news, Boohoo was trading on a very rich 53 times forecast earnings. Nevertheless, I think this should be seen in the context of the growth it is achieving.
Having picked up the remainder of PrettyLittleThing and acquired “well-known women’s brands” Oasis and Warehouse over the period, I think the future looks very rosy. If the company can attract more mature, less fickle consumers to its sites, its goal of becoming a market leader looks realistic.
You probably don’t need me to tell you that Boohoo’s finances are also virtually bulletproof. Net cash at the end of August came to just under £345m — up almost £138m on the previous year. What a contrast to other stocks on the market!
My suggestion? If you’re a committed buy-and-hold investor, you can safely ignore today’s reaction. After buying the shares when the supply problems first emerged, I certainly plan on staying invested for some time to come.
