boohoo group plc Deliver Yet Another Strong Performance

boohoo group plc (LON:BOO) has today announced its interim results for the six months to 31 August 2018.

Highlights

Group

· Revenue £395.3 million, up 50% (49% CER(6))

· Strong revenue growth across all geographies (UK: +43%; international: +62%). International now 41% of group revenue

· Strong balance sheet with net cash of £155.6 million (2018: £119.2 million) with robust operating cash flow of £55.7 million (2018: £33.0 million) and free cash flow of £24.5m (+93%)

· Distribution capabilities enhanced: PrettyLittleThing warehouse relocation completed; and automation of Burnley site to drive future efficiency is on schedule

boohoo

· Revenue £209.0 million, up 15% with market share gains in all focus markets

· Gross margin 53.4%, up 110bps; retail gross margin 56.0%, up 160bps

· 6.7 million active customers(7), up 15% on prior year

· Market share and brand awareness increasing, supported by proposition investments

· Next phase of fit-out and automation of distribution centre in Burnley on schedule for utilisation in 2019

PrettyLittleThing

· Revenue £168.6 million, up 132%

· Gross margin 57.3%, up 250bps; retail gross margin 59.0%, up 200bps

· 4.0 million active customers, up 99%

· Outstanding growth of market share and revenue in all markets

· Successful relocation of distribution centre to Sheffield with significant capacity that can service the brand’s growth

Nasty Gal

· Revenue £17.7 million, up 111%

· Gross margin 59.0%, down 480bps driven by refinements to the customer proposition

· 0.6 million active customers, up 313%

· Strong revenue growth in the USA and international markets

Guidance

Group revenue growth for the year to 28 February 2019 is expected to be 38% to 43%, up from our previous guidance of 35% to 40%, with adjusted EBITDA margin between 9% and 10%. We reiterate our medium term guidance to deliver sales growth of at least 25% per annum and EBITDA margin of 10%.

Mahmud Kamani and Carol Kane, boohoo group plc joint CEOs, commented:

“Our group results for the first half year show yet another strong performance, delivering record sales and profits. All of our brands performed extremely well across all territories as we continue to gain market share. We achieved market-leading growth in all markets, with Rest of Europe and the USA being particularly pleasing. Growth in the UK, our largest market, remains very strong.

We successfully executed a major relocation of the distribution centre for PrettyLittleThing, which represents a key milestone as we develop a distribution network capable of generating £3 billion of net sales globally, in line with our vision to lead the fashion eCommerce market. This relocation was carried out with a low level of disruption to the operations of PrettyLittleThing and is a credit to the project team. Our extended distribution centre in Burnley, which will have a significant element of automation to drive efficiency savings, is scheduled for operational use in 2019.”

Investor and Analyst Meeting

A meeting for analysts will be held at 9.30am on 26 September 2018 at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN. boohoo group plc’s interim results 2019 are available at www.boohooplc.com.

A live audio webcast will be available at 9.30am via the following link:

http://webcasting.buchanan.uk.com/broadcast/5b5882ccd3653708d12fdadf

A replay will subsequently be available from 12 noon via the same link.

Review of the business

Group overview

Group revenue for the half year increased by 50% (49% CER) on the first half of the previous year to £395.3 million (2018: £262.9 million). Revenue growth across all territories and brands was strong.

Adjusted EBITDA was £39.6 million (2018: £27.8 million), an increase of 43% on the first half of the previous year, with planned investments in the customer proposition and marketing across the group leading to an adjusted EBITDA margin of 10.0% (2018: 10.6%). Adjusted profit before tax was £35.8 million (2018: £25.1 million), an increase of 43%. Profit before tax was £24.7 million (2018: £20.3 million), an increase of 22%. Adjusted diluted earnings per share was 1.99p, up 31% on the prior half year. Basic earnings per share rose to 1.42p, an increase of 14% (2018: 1.25p).

In the first half year, the group has again achieved outstanding growth with profitability in line with guidance. All of our brands have performed extremely well and the exceptional growth of PrettyLittleThing continues. The group has achieved gains in market share across its key focus territories and brand awareness has heightened through successful celebrity associations and influencer campaigns. The customer proposition has been refined, with faster delivery times, more delivery options, new payment methods and quicker refunds. Gross margin has improved as a result of stronger sell through, tighter control on stock cover and refinement of the customer proposition.

Cash flow generation was strong, with free cash flow up 93% to £24.5m. Capital expenditure was £31.2 million as we invest in our infrastructure ahead of our growth curve. Our net cash balance at the period end increased to £155.6 million (2018: £119.2 million).

Distribution centres

The construction of our latest distribution centre extension at Burnley is now complete and fit-out is underway with completion scheduled for 2019. Automation is a key component of the fit-out which will greatly improve picking efficiency. In addition to the new welfare facilities open to all employees, we now provide a bus service to the Burnley distribution centre from nearby towns. PrettyLittleThing’s distribution centre relocation to Sheffield was completed successfully during July and August. Exceptional dual running expenses incurred during this period amounted to £6.4 million. The addition of the Sheffield facility greatly increases our sales capacity, will help underpin PLT’s infrastructure needs and adds further operational flexibility for the group as we continue to invest in our future distribution network capable of generating £3 billion of net sales globally.

boohoo (including boohooMAN)

Performance

Revenue for the half year increased to £209.0 million, up 15% on the first half of the previous year, with growth in all our key focus markets.

International growth continues to be strong, especially in northern Europe, where we are rapidly gaining market share, whilst both UK and international growth accelerated in the second quarter alongside an improved gross margin performance. Gross margin increased by 110bps to 53.4%, driven by improved stock control and refinement of the customer proposition.

Product

New product introductions and comprehensive size range offerings have continued to drive growth. boohooMAN has performed strongly with an ever-extending product range and increasing customer reach. Our offering changes daily, with hundreds of new styles added and the very latest fashions appearing within days or weeks of trends being spotted by our fashion experts and offered to our customers at affordable prices. The breadth of the range makes boohoo a destination to which customers keep returning to find their desired items with ease.

Marketing

Marketing activity in the first half year included several high profile celebrity campaigns: Zendaya, Stefflon Don, French Montana, Dele Alli and Paris Hilton headed the cast and were instrumental in driving increased brand awareness. Other activities continued using a successful formula of a mix of media, including social media influencers, bloggers, TV, outdoor, email, student events and digital acquisition channels. Our social media presence continues to grow and we now have 5.0 million followers on Instagram, 2.9 million Facebook fans and 0.5 million followers on Twitter. We have opened marketing offices in Paris and Los Angeles, which will provide local knowledge and focal points for future campaigns and marketing initiatives as we continue to drive awareness of the boohoo brand worldwide.

Customer interaction

Active customer numbers over the last 12 months increased by 15% to 6.7 million. Conversion rate to sale decreased from 4.5% to 4.1% of sessions, when measured on website statistics alone. Order frequency increased 2%, with customers placing an order with us, on average, 2.15 times in 12 months, whilst the number of items per basket decreased 4% to 3.06.

We have continued to refine the customer proposition with free returns, next day delivery and collection points available in more overseas markets. In the UK, the cut-off time for next day delivery has been extended to 11pm and 12pm for next day evening delivery. SMS messaging has been introduced in the UK to keep customers informed of delivery status and we are trialling artificial intelligence in customer contact response. We have 17 country-specific websites and have plans to introduce more foreign language websites and more payment options in overseas markets during the year, in line with our aim to attain best-in-class customer service.

Technology

The principal technology projects completed in the first half year include new payment solutions and more country returns portals, which give more returns flexibility and enable us to refund customers immediately after the courier collects their parcel. We have also introduced social logins for UK customers. Projects underway include a new app with increased functionality and the warehouse automation project, which will drive significant efficiencies.

PrettyLittleThing

Performance

PrettyLittleThing (“PLT”) again achieved outstanding revenue growth of 132% over the first half of the previous year, despite some disruption to sales during the warehouse relocation. Growth across all territories was strong. Increased costs of working were incurred whilst the warehouse was relocated, which have been classified as exceptional within distribution costs and administrative expenses, and amount to £6.4 million. These comprise the extra costs of operating two sites in the pre go-live and migration periods, dual shipping of customer orders, physically moving stock between the two sites and increased customer service costs to deal with queries during the migration period. Gross margin has increased to 57.3% (2018: 54.8%), with stronger sell-through and refinements to the customer proposition.

Product

PLT brings the latest and most relevant celebrity looks at affordable prices to our customers, with a choice of over 13,000 styles and new items available daily. Our product range has continued to expand during the first half of the year with strong growth being seen in the “shape” ranges including Petite, Curve and Plus. During the first half year we continued to bring the latest celebrity looks to customers including collaborations with UK Radio presenter, Maya Jama, and American Hip-Hop stylist, Karl Kani.

Marketing

We have continued to extend our social media reach by increasing the number of social media influencers, combined with celebrity campaigns and collaborations. These include Maya Jama, Karl Kani and the recently-announced collaboration with Ashley Graham, one of America’s most successful models, all of which help the brand reach its target audience.

Customer interaction

We now support eight country-specific websites and have plans for further foreign language sites, following the success of the French language site, introduced in the previous financial year. For the UK market, we offer a wide range of free return options. We have also introduced new returns options in international markets, accelerating the point of refund to enhance the customer experience.

Active customer numbers over the last 12 months increased by 99% to 4.0 million. We have 1.4 million followers on Facebook (an increase of 40% in 12 months), 0.2 million followers on Twitter, 6.3 million Instagram followers (an increase of 200% in 12 months), as well as a presence on several other social media channels.

Technology

PLT operates iOS and android apps for the UK and US markets and the apps have been developed throughout the period to improve the customer experience and conversion rates. There have been continuous improvements to the performance and user experience of all customer-facing websites, with key highlights being the introduction of a new ‘Contact Us’ page to more effectively manage customer queries and enhance product information. We regularly review payment options offered to customers, adding new methods pertinent to each market.

Nasty Gal

Performance

Revenue growth across all territories has been very strong at 111%. The USA is the largest market for the brand and revenue growth there remains robust. The brand continues to see strong growth outside the US, albeit from a low base. Gross margin at 59.0% (2018: 63.8%) has remained at a pleasing level as the customer proposition is refined in each territory. Conversion and the number of items per basket have also risen.

Product

Our product range continues to broaden and targets price points higher than those of boohoo. The brand has its roots in Los Angeles and portrays a distinctive look for the confident girl who like to express her personality through the clothes she wears. Now, with over 6,000 styles in stock, the brand’s appeal is rising and reaching a larger audience.

Marketing

The marketing strategy has focussed on building and extending the number of bloggers and influencers and staging key media events to re-engage customer interest and promote brand loyalty.

Customer interaction

Nasty Gal has six country and regional websites, developed since start-up in March 2017 and Android and iOS apps for the UK, US and the Australian markets.

On social media we have 2.8 million followers on Instagram, 1.2 million Facebook likes and 0.2 million followers on Twitter.