Boohoo Group Plc (LON:BOO) has released a short trading statement this morning confirming that trading to date remains strong, with record Black Friday sales seen across the group. The group continues to trade “comfortably” in line with market expectations and we leave our forecasts unchanged this morning having upgraded our numbers at the interim results on 26th of September. Boohoo is a well invested business with significant capacity for ongoing growth. It is backed by a strong balance sheet with net cash of £164m at interim results. At current levels, boohoo trades on an FY19 P/E of 40.8x falling to 33.5x in FY20 which looks undemanding versus its peers given a 2-year forecast Sales CAGR of 33.1% alongside an EBITDA margin of 9.5%.
ASOS warning. We note this morning’s trading update from ASOS, where strong promotional activity across the sector as well as customers trading down towards lower price products has impacted profitability; average selling prices were down -6% YoY.
Boohoo’s vertically integrated value proposition. We believe that, as the leading value retailer in the sector, boohoo is well placed to benefit from a consumer trend towards more competitively priced products. boohoo’s brand led business model also gives it greater visibility and control over margins with the ability to flex investment in marketing and advertising to maximise returns.
Significant headroom to invest in promotional activity. The group’s gross margin performance in H1 was impressive, with margins 200bps higher YoY. This meant it entered the key H2 trading period with significant scope for investment in price and promotion; this is reflected in our full year gross margin forecast of 53.3% (versus 55.3% at H1 FY19). As highlighted in the ASOS statement, there has been high levels of promotional activity across the market which we believe boohoo has proactively participated in, in line with budget and plan.
Forecasts unchanged. Having upgraded our full year outlook alongside interim results on 26th September, we make no change to our forecasts this morning with the key trading period of black Friday delivering a record performance and management confirming trading is comfortably in line with consensus estimates.
Valuation and outlook. boohoo’s significant investment in distribution capacity, a new CEO with a wealth of operational experience, and a strong balance sheet with significant net cash means the business is well positioned to execute the next stage of its growth. boohoo trades on an FY19 P/E of 40.8x falling to 33.5x in FY20 which looks undemanding versus its peers.
