Shares in online fast-fashion retailer Boohoo (LSE: BOO) have delivered disappointing returns. Yesterday, Boohoo’s share price fell more than 15% after the company posted its half-year results. Over the last year, the stock’s fallen 40%.
Here, I’m going to take a look at yesterday’s results. I’m also going to look at whether, as a shareholder, it’s time for me to sell.
Why Boohoo’s share price crashed
I can see why the share price crashed after yesterday’s H1 results. There were quite a few negatives in the report. For a start, revenue for the six months to 31 August was only up 20%. This is low for Boohoo. Last year, the group posted 45% growth in H1 revenue. The year before, it posted 43% growth.
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Then there was a 20% drop in adjusted profit before tax. Last year, Boohoo delivered an increase of 53%. The year before, the increase was 45%. The group said that profitability was impacted by “a number of cost headwinds driven by short-term factors largely relating to the pandemic” as well as its investment as it scales up its newly-acquired brands. It noted that shipping costs were “materially higher.”
Additionally, Boohoo said adjusted EBITDA margins for the full year are now expected to be 9-9.5%, compared to previous guidance of 9.5-10%. This is due to ongoing investments across its technology, offices, and infrastructure.
Optimistic about the future
But there were some positives in the H1 report. For example, the group said it had recently seen a re-acceleration in the rate of growth compared to that achieved in Q2 and that it expects full-year sales growth of 20-25%. This implies sales growth of 20-30% in H2.
The group also kept its medium-term targets unchanged. It’s targeting sales growth of 25% per annum and an adjusted EBITDA margin of 10%.
Finally, management was optimistic about the future. “We remain extremely confident in the group’s future growth prospects,” said CFO Neil Catto.
Boohoo shares: my move now
While Boohoo’s H1 results were disappointing, I’m going to hold onto my shares for now. Boohoo’s still a relatively young company so revenue and profit growth is going to fluctuate at times.
Looking at the results, I don’t see any major red flags. Investment costs to support growth are very normal for a young company. And many of the Covid-19 issues the company is facing, such as higher transportation and logistics costs and higher levels of returns, are impacting a lot of companies in the industry including major players like Nike.
It’s worth noting that Boohoo believes these issues will normalise in the medium term on the back of infrastructure investment and automation.
It’s also worth pointing out that over the last two years, Boohoo’s grown its revenue 73% and doubled its market share in the UK and the US. So it’s definitely heading in the right direction.
And looking ahead, there are reasons to be positive. Realistically, the world’s still very much in the early stages of the reopening process. As social activities (events, travel, etc) pick up, demand for fashion should rise.
Of course, there are risks to be aware of. For example, inflation could stick around for longer than expected, putting further pressure on profits.
I’m comfortable with the risks though. I expect Boohoo to continue growing in the years ahead so I’m going to hold onto my shares.
