Boohoo’s Share Price Drops As It Warns On Margins, H1 Profits Slump

The boohoo Group share price has tanked on Wednesday following a frosty reception to half-year financials.

At 33.5p per share Boohoo shares were last 9% lower in midweek trading. In the year to date the ‘fast fashion’ retailer has shed almost three-quarters of its value.

Profits Tank 90% As Revenues Drop

It its latest update boohoo said that revenues slipped 10% in the six months to August, to £882.4 million.

It said that UK revenues fell 4% and softened during the second quarter “as inflationary pressures increased.” It added that “consumer demand appears to have been impacted by cost of living pressures.”

Sales in Britain accounted for 62% of the group total between March and August.

Meanwhile, sales in its international markets sank 17% in the first half, led by weakness in the US where turnover dropped 29%. The company noted that delivery times Stateside remain elevated compared with pre-pandemic levels.

Boohoo is also suffering as a result of high cost inflation and increasing freight and logistics expenses. Gross margin dropped 210 basis points year on year to 52.5%.

These pressures caused boohoo’s adjusted pre-tax profit to tank 90% in the first half, to £6.2 million.

Margin Forecasts Slashed

The business warned that, in light of the impact of “the macro-economic and consumer backdrop” on its first half results, it expects a similar revenues decline in the remainder of the year “if these conditions persist.”

On top of this, boohoo has today downgraded its margin forecasts for this year. It now expects an adjusted EBITDA margin of between 3% and 5%, down from its prior estimate of 4% and 7%.

“Increases in inflation-driven costs as well as the resultant operational deleverage from lower sales than previously anticipated” were behind this revision, boohoo said.

Lyttle Speaks

Commenting on the results, boohoo chief executive John Lyttle said that “performance in the first half was impacted by a more challenging economic backdrop weighing on consumer demand.”

He paid tribute to the “significant gains in market share” the company has made across its brand portfolio in the past three years, and “particularly in the UK where our price, product and proposition resonate strongly with customers.”

“We have a clear plan in place to improve future profitability and financial performance through self-help via the delivery of key projects, which will stand us in good stead as macro-economic headwinds ease,” Lyttle added.

“Crying Into Their Cornflakes”

Rosalind Hunter, partner at consultancy Simon-Kucher & Partners, noted that “retailers and fast fashion brands… in particular have been acutely aware of the impact the cost-of-living crisis has had — and will continue to have — on consumer spending habits.”

She added that “compared to 2019, the growth in the business is still clear with active customers up 47% and orders up 36%.” But she continued that “conversion is now lower than 2019 levels which would indicate consumers are definitely being more cautious also reacting to increases in average basket value.”

Derren Nathan, head of research at Hargreaves Lansdown, says that boohoo investors “may well be crying into their cornflakes” following today’s update.

He said that boohoo’s update showed “significant progress towards long-term growth ambitions.” Automation at its Sheffield distribution centre is now live, for example, whilst a new US distribution centre remains on course to be opened next year.

However, Nathan added that “we must remember that the long term is a series of short terms, and it remains to be seen how long weak demand, inflationary pressures, and supply-chain bottle necks will continue for.”