Boohoo swings to pre-tax loss as sales fall, but progress made

Boohoo Group released its first-half results on Tuesday and while it spoke of making “substantial progress, delivering key operational and strategic projects and an improvement in adjusted EBITDA margin” in the six months to the end of August, there was also negative news.

Revenues in core brands declined 10% — although that was consistent with prior guidance for group revenues to decline by 10-15% (and if we wanted to look on the bright side, was at the bottom end of the predicted decline range).

It said it saw “more significant declines in our labels following the successful decision taken to target more profitable sales, which contributed to improved group profitability”. And it added that “investments in key strategic initiatives are underpinned by our significant cost savings programme”.

Total revenue fell 17% to £729.1 million and gross profit dropped 16% to £389.2 million. Adjusted EBITDA was down 12% at £31.3 million. And the pre-tax loss was £9.1 million, down from a profit of  £6.2 million a year earlier.

Looking more closely at the revenue issues, as mentioned, the group’s core brands, before factoring in the impact of Debenhams marketplace commissions on statutory net revenue, declined 10%. This accounted for 8 percentage points of the group’s total revenue decline. More significant declines in revenues however came from its labels, “following proactive actions taken to target more profitable sales”. This accounted for a further 8 percentage points of the group’s revenue decline, but with much improved profitability. 

But strong GMV growth was achieved within the Debenhams marketplace, with its increase as a proportion of group revenue accounting for two percentage points of the decline given the firm only recognises commission income on marketplace sales.

Overall UK revenues declined 19% reflecting the impact of the macro environment on consumer demand, as well as price investments and the previously mentioned increase of the Debenhams marketplace within the sales mix. 

International revenues declined 15%, with extended delivery times continuing to impact the customer proposition for most of the period and strong wholesale comparatives with new partners onboarded in the first half of the prior financial year also being an issue. 

But the US distribution centre went live in August with its first brand, PrettyLittleThing, on time and on budget, as part of a phased rollout of brands into the site. “This will transform the delivery proposition for customers in a key strategic market, and for brands that are operationally live, delivery times have improved by three days on average since launch”, it said.

The company also said that during H1, it “captured supply chain deflation and lower input prices, and reinvested these savings to drive faster lead times and lower prices for customers”. It also strengthened its test & repeat model with significantly improved lead times, while average selling prices were down year on year in comparison to a UK clothing market which has seen price inflation of 8%. And there was an increased mix of entry price point categories to reinforce value for customers.

It was helped by the “best-in-class logistics through automation” in its Sheffield hub “delivering record levels of productivity” and its US distribution centre launching “successfully, upgrading our proposition with next day & express delivery options into a key strategic market”. Further brands are to be phased in here over the next 12 months.

CEO John Lyttle said: “Over the first half we have made substantial progress across key projects and initiatives, including the launch of our US distribution centre. We have seen significant improvements in sourcing lead times and invested in pricing to reinforce our value credentials. We have identified more than £125 million of annualised cost savings that support our investment programme. Our confidence in the medium-term prospects for the group remains unchanged as we execute on our key priorities where we see a clear path to improved profitability and getting back to growth.”
               
The group’s focus “remains on executing its back-to-growth strategy through disciplined investments across product, price and proposition”. But given the slower volume recovery than previously anticipated and the continued targeting of more profitable sales within its labels, revenues for the year ending 28 February 2024 are now expected to decline by 12-17%.

EBITDA margins are expected to be between 4% and 4.5%, given the strong progress made on gross margin and cost control. Adjusted EBITDA is expected to be between £58 million and £70 million.