Shares in fast fashion giant Boohoo Group (LSE: BOO) were down over 5% this morning despite the company providing the market with the sort of trading update most firms, particularly those in the troubled retail sector, would kill for.
Sales soar (again)
Total revenue across all three of the company’s brands rose 39% to 254.3m in Q1.
Interestingly, PrettyLittleThing contributed 44% of this amount (£112.1m) — only slightly less than that achieved by Boohoo’s eponymous brand (£123.5m). Sales at the former jumped 42% compared to the latter’s 27%, demonstrating just how well the company is managing to grow previous acquisitions.
At 153%, the company’s third brand — Nasty Gal — achieved the biggest growth in revenue but still contributed only a small amount (£18.2m).
Importantly, sales rose in all parts of the world in which Boohoo operates. The UK remains its biggest market, but sales in the Rest of Europe were up 72% to £38.2m and 64% to £51.3m in the USA.
Taking this into account, I suspect Boohoo may end up beating its guidance on full-year revenue growth of somewhere between 25% and 30%.
Over the reporting period, the AIM-listed company also purchased the brand and intellectual property assets of online womenswear retailer MissPap for an undisclosed amount.
Despite this outlay, Boohoo’s finances continue to look rock solid with a net cash position of £194m by the end of May — 29% more than at the same point last year.
Perhaps the only bit of ‘bad’ news was the slight reduction in gross margin from 55.2% to 55%, which may explain the share price reaction.
As always, however, Boohoo remains an expensive stock to buy, trading on an eye-popping 46 times earnings before today’s figures were announced.
As such, I feel it’s worth reminding Foolish readers that anything less than perfect delivery from new CEO John Lyttle and his team going forward could see the shares hammered.
Profit warning woes
Whether the high expectations of Boohoo’s investors make it a risky buy or not, no one could argue that today’s numbers weren’t a world away from those released by Ted Baker (LSE: TED) yesterday, as covered by my Foolish colleague Roland Head.
Like Roland, I do not believe that the departure of founder Ray Kelvin can be blamed for recent trading. I’d bet that most shoppers won’t have heard of him or will have quickly forgotten about the allegations made against him.
I’m also willing to accept bad weather for poor performance in the US, especially as this explanation was used by highly-regarded laser-guided equipment manufacturer Somero Enterprises when it warned on profits last week.
For me, Ted has simply become another victim of ongoing consumer uncertainty and the move away from the high street — something online-only Boohoo doesn’t need to worry about.
While I continue to believe that the shares will recover, the scale of the fall in earnings has forced me to revise my opinion on how long this will take. Like fellow retailer Superdry, where I have a small position, we’re looking at more than just a few months.
In contrast to Superdry, however, Ted carries a fair bit of debt. The former also benefits from having a highly-motivated returning CEO (and huge shareholder) in the form of Julian Dunkerton, making me slightly more optimistic that it will bounce back first.
As such, Ted remains on my watchlist for now.
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Paul Summers owns shares in Superdry and Somero Enterprises, Inc. The Motley Fool UK has recommended boohoo group, Somero Enterprises, Inc., Superdry, and Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.