If you think that lockdowns have caused untold misery to every single consumer-facing business out there, you’d be wrong. Flying in the face of the coronavirus pandemic, today’s trading update from online fast-fashion firm Boohoo (LSE: BOO) is the stuff of dreams for any company.
Here’s why the shares are soaring (again).
Not so Boohoo
Trading in the three months to the end of May was described as “very strong.” So strong, in fact, the company hasn’t needed to take advantage of any government support, so far.
Of course, this isn’t a complete surprise. BOO did, after all, report surprisingly robust trading at the end of its previous financial year (ending 29 February).
While lockdown inevitably weakened this momentum, today’s numbers point to a massive recovery in May. Group revenue for the first quarter came in at £367.8m — a stonking 45% higher than over the same period in 2019.
Encouragingly, growth has been seen across the main brands of Boohoo, PrettyLittleThing, and Nasty Gal. This was thanks, in part, to the company recognising that sales of loungewear and athleisure would be stronger during the lockdown and quickly adjust its marketing strategy.
Elsewhere, sales at relatively new additions, MissPap, Karen Millen and Coast, also appear to be very healthy. This goes some way to highlighting the company’s increasing aptitude for rescuing and revitalising troubled labels.
There were other positives. While the UK remains BOO’s biggest market, sales in other parts of the world are catching up fast. In the US, for example, revenue rocketed 79% to £92m.
While the coronavirus is clearly a global issue, the fact that trading overseas is so buoyant gives the company a good amount of earnings diversification. This could be worth bearing in mind when our attention returns to Brexit.
As well as reporting on trading, Boohoo also announced the capture of Oasis and Warehouse for £5.25m after both chains collapsed in April. This follows management’s swift purchase of the final slice of PrettyLittleThing a few weeks ago, in response to an attack by short-sellers.
Will this be the end of Boohoo’s acquisition spree? Don’t count on it! Having raised nearly £200m from investors in May, the company now boasts more than £350m in net cash on its balance sheet.
This sizeable war chest should allow the AIM-listed star to continue buying brands on the cheap. And given the impact the coronavirus is likely to have on consumer behaviour going forward, there’s unlikely to be a shortage of candidates to choose from.
Boohoo’s goal is “to lead the fashion e-commerce market globally.” Based on its solid outlook, I think it stands a good chance of achieving this.
Growth in this financial year is now expected to be ahead of analysts’ current expectations, despite ongoing investment and consumer uncertainty. Revenue, for example, is now predicted to come in roughly 25% higher than last year.
Whether the shares are still worth buying after climbing almost 170% since mid-March is another thing entirely, of course. Even the best companies can make for poor investments if they’re purchased at too high a price. Would Boohoo fit this category?
A perpetually rich valuation — 60 times earnings before this morning’s rise — definitely leaves no room for error. Should markets wobble again however, I’d certainly consider joining the queue.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. 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.