Boohoo Christmas trading update Jan 10, 2017

Posted by Thomas Andersson on

Boohoo [AIM: BOO] announced its four months trading to December 31st, 2016 earlier today. The share closed the day [Jan 10, 2017] at 144.75p, less than 1% up from its 143.50p close the day earlier suggesting a mixed bag of news.

While revenues in the four months were up by 55% the share may have been dragged down by concerns over its gross margin which fell to 53.1%

During the Christmas period, the company announced its two-thirds acquisition of Prettylittlething.com (a company founded by the son of one of the joint-CEO's of Boohoo.com) and a $20m bid for the customer database of NastyGal.com.

A possible acquisition of Prettylittlething.com (PLT) had been announced earlier in 2016. Our view is that PLT has been unable to turn a profit in the face of competition from Missguided.com and others. The FT reported "The company, which brands itself “the voice and style of the social generation, said it expected revenue growth from the core business of between 43 and 45 per cent for the year to February 28, up from previous estimates of between 38 and 42 per cent." which would indicate PLT adding about £10m in revenues to the Boohoo balance sheet. It is unclear what costs will be added as a result, which might be part of the limited gains in Boohoo's share price today.

However, Boohoo has performed very well indeed and its share traded at about 24p only two years ago following concerns about its profitability. Indeed, Asos indicated in the Autumn 2016 that it would follow Boohoo's strategy of UK sourcing.

We have no doubts that revenues will continue rising. However there are some concerns on the horison:

  1. When will the UK garment manufacturing industry start increasing prices?
    With Missguided, Boohoo and now Asos on-shore sourcing surely demand must outstrip capacity at some point. It is possible that the Manchester based companies will have a huge advantage on their London-based competitor and that Boohoo's background in garment manufacturing has created bonds that will survive some price flexibility.
  2. What will happen if Primark enters online?
  3. What will the impact of Amazon Fashion have on the value segment?
  4. and more...

We're waiting eagerly for Asos' update in two days time...

Check out our FREE Boohoo Unicorn Diagnosis report here (reported before Christmas)

 


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