Is Boohoo.Com PLC Becoming The Next ASOS plc?

Online fashion retailer Boohoo.Com (LSE: BOO) issued its interim results for the six months to 31 August today, and the company’s performance for the period was better than many expected.Boohoo

Indeed, with many of the company’s European peers such as H&M, Next and even ASOS (LSE: ASC) reporting slowing sales, many analysts were doubtful that Boohoo could deliver. However, Boohoo’s growth continues. 

For the six months to August, Boohoo’s sales jumped 31%, EBITDA grew 63% and profit before tax increased by 23%. What’s more, the group reported a strong balance sheet with net cash of £56m at the end of the period – that translates into a cash per share figure of around 5p.

Commenting on today’s results, Mahmud Kamani and Carol Kane, joint CEOs, said:

“We are delighted with the results achieved during our first six months as a public company. We have grown revenues whilst continuing to lay the foundations for future growth…we continue to trade in line with market expectations for the full year.”

The next ASOS

After today’s news, I wonder if Boohoo is rapidly taking over from ASOS, as the AIM market’s most impressive fashion start-up?

ASOS has made numerous mistakes during the past 12 months, all of which have slowed growth and knocked confidence in the company’s brand. So, to try and combat these mistakes, as well as compete effectively with peers, ASOS has been slashing prices and offering hefty discounts. Unfortunately, these discounts have squeezed suppliers and some are now threatening to take their brands elsewhere. 

Further, ASOS is facing vicious competition from its rivals, which has squeezed margins. In the year to 31 August ASOS’s gross margin declined by 230 basis points, compared to the same period last year. During the third quarter ASOS’s gross margin contracted further, falling 640bps.

Boohoo, on the other hand, has not seen the same kind of margin pressures. The company’s headline gross margin expanded by 480bps during the first half of this year, compared to the same period last year. A widening gross margin helped the company grow gross profit by 41% during the first six months, while revenue only expanded 31%. 

A cheaper bet

As Boohoo grows and ASOS flounders, it seems reasonable to suggest that Boohoo should trade at a higher valuation than ASOS, but this is not the case. Indeed, at present levels Boohoo trades at a forward P/E of 35.1, falling to 25.4 next year. Boohoo’s earnings per share are expected to jump 20% this year followed by 38% during 2015. 

In comparison, ASOS’ earnings are expected to fall 19% this year but the company still trades at a forward P/E of 46.8, falling slightly to 43.0 during 2015.

The bottom line 

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.