Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Lots more stuff about margins EBITDA forecast as high as £78M etc, too much blurb to post
The gist off the BoD is pretty much,more cost cutting to come even after the £50M identified already, decrease in working cap feeding FCF +, focused on margin not chasing revenue,
Capturing deflation / not giving it to suppliers be that on COGS etc , then working on cost of sales that ballooned last year
Mentioned before none of us know as yet and I could well out but there are so many opportunities to generate profit / cash from stuff they control I suggest they will surprise to the upside on EBIDTA margin and FCF+
We will know just over 2 weeks time
CEO 2/2
And then finally, just a question on Debenhams. Look, we're really pleased with Debenhams. You'll have seen some of the numbers that we've got. I can say it's a profitable Debenhams already. Really now it's about onboarding more brands. We're way ahead of a number of brands that were on old Debenhams. And clearly, having online-only allows us to do that. It's really about scoring more and more brands, getting more customers, but we're excited.
You can see we mentioned that it's one of our key brands, one of our key focuses. And it's from an investment point of view, Shaun's very happy. It's stock-light, less, in terms of infrastructure, but we just see a super opportunity ahead for us on that brand.
This is an interesting read 1/2
Question
John Stevenson (Analysts)
John Stevenson of Peel Hunt. A couple of questions, please. First up, just on the U.S. launch. Can you touch on sort of plans for marketing and also plans for sort of local supply chain, I don't know how quickly we hope to start testing something a little closer to the U.S.?
And second question, just on Debenhams. If you can talk a little bit about how Debenhams performed last year and what you're looking to achieve coming to peak this year, whether that's in terms of number of brands or the profitability of the platform and sort of the progress that you think you can get to?
Answer
John Lyttle (Executives)
Yes. So if I kick off with the U.S. and local supply chain. So we're already active is what I would say, in the U.S.. So that's working with partners in the U.S. who may be making in China, Asia, in some countries, but importing directly in. And that's mostly in L.A. and in New York. We're looking at Mexico. We're looking at Central America, Guatemala in terms of what's coming through there. So we're active. We've already opened up. We're already working with suppliers in advance of that and ready for when our first brand PrettyLittleThing goes live sort of towards the end of summer. So all happening there. We've got actually our own team on the ground. We're beginning to build a team in Los Angeles. So that's all progressing really, really well.
And in terms of U.S. marketing plans, clearly, we want consumers to know that you can now get a parcel within 3 days, and in some cases, next day. So we'll be actively communicating that. We have some events planned as we go into September, October, particularly on PrettyLittleThing to really begin to build that brand awareness again.
I'll hold back on those plans for the moment, just sort of we kind of give those to the consumer first. But obviously, yes, we're preparing in terms of marketing for that as we come through.
And then finally, just a question on Debenhams. Look, we're really pleased with Debenhams. You'll have seen some of the numbers that we've got. I can say it's a profitable Debenhams already. Really now it's about onboarding more brands. We're way ahead of a number of brands that were on old Debenhams. And clearly, having online-only allows us to do that. It's really about scoring more and more brands, getting more customers, but we're excited.
You can see we mentioned that it's one of our key brands, one of our key focuses. And it's from an investment point of view, Shaun's very happy. It's stock-light, less, in terms of infrastructure, but we just see a super opportunity ahead for us on that brand.
Then this confirming Debenhams is profitable see 2/2
CFO’s comments on working cap
Worth mentioning this was May so 3 months into H1 2023
‘A key driver of unlocking cash is the work we're doing on our stock management as we push to drive a leaner, lighter, faster boohoo. As mentioned, inventory is down 36% year-on-year. Our lead times are improving 3 weeks faster alone in April compared to a year ago. We've accelerated our stock turn, delivering an additional turn improvement to date.
And whilst we're pleased with the progress made in recent months, there's more opportunity ahead as we look to unlock further lead time improvements. Speed matters and shorter lead times are critical in our drive to get back to growth. The execution of our strategy and specifically, the focus on inventory turn has driven significant working capital inflows over the last year’
He continues the chat then says
‘My focus is on 4 key areas. Firstly, on stock management, we made great progress, bringing inventory down significantly with a 36% reduction year-on-year and more than GBP 100 million in absolute terms, and we see further opportunity to move this further. We're prudently managing all of our costs in our business, ensuring that the cost base is appropriately sized’
Suggest they knew 50% through H1 they had a chance to reduce working cap days, they surprised the market with full year results pulling in £100M of cash
My take is, we will see a drop in revenue up to the 15% but that’s helpful as they push the headline margin up and at the same time generate FCF +
Looks to me they are repositioning some of the brands to higher margin test / repeat were they can which we can see partly via Karen Millen and Campbell/ PLT etc
Mindful of clogging up the BB
Picked up a few topics the BB had been chatting about
None of really know one way or the other how it’s gone but below is a small sample of the Q&A post results
Question
Adam Cochrane (Analysts)
It's Adam Cochrane from Deutsche Bank. A couple of questions, please. You mentioned you have a clear line of sight to a 6% to 8% EBITDA margin. Can you share what sales base is required within your clear line of sight and what the gross margin that is really embedded within that 6% to 8% is, please?
Answer
Shaun McCabe (Executives)
Yes. So I'm not going to give you a breakdown of what sort of margin improvements we might make or where exactly we're going to get those EBITDA improvements from. But the sort of things that we're going to see, John spoke to the capturing of deflation in our product cost prices, whether that's raw materials, as we've seen cotton prices dropping, whether it's freight, whether it's energy costs, all of those things, we need to go and get that.
So that is a big chunk but there's other stuff as well. So in the supply chain, we've gone from -- we went from 2 fulfillment centers to 4. And now we've reduced back down to 3 as we've closed our Wellingborough facility. So we've made ourselves more efficient in the supply chain, for example. As we've managed through a period of decline, we've seen some inefficiency in our marketing.
Question
Simon Irwin (Analysts)
Could I just rephrase that then. I'm saying of all the benefits that are coming through, how much do you think that you'll take to the bottom line? And how much do you think you'll invest in price and proposition.
Answer
Shaun McCabe (Executives)
So we're not going to give you a split of that because actually, we don't know the answer to that. But it will be about investing in price, so improving the price for the customer, and it will be about taking some to margin, but it will also be about investing in lead time. And your question was about why is it competitive advantage. And let me just give you an example of why I think it does give us a competitive advantage.
So when we capture that deflation and what we'll do, what we saw a year ago, Simon, is airfreight was so egregiously expensive that we shifted a whole bunch of our inbound to see. And of course, that adds the lead time. And John spoke about how the test-and-repeat model is very difficult in an environment where you can test, but you can't repeat. You just don't have the lead time to be able to get the product back fast enough -- but in a world where we can invest those deflation, those savings back into airfreight that allows us to get the test-and-repeat model really working for us again. And that's why I think it's a competitive advantage because the test-and-repeat model is the kind of life blood of our buying model.
Question
Simon Irwin (Analysts)
More broadly, why is deflation a competitive advantage? That seems to be the core of your optimism around future margins is that costs are coming down, and therefore, your margins are going to go up because you're going to invest. Why isn't everyone else going to do the same thing?
Answer
John Lyttle (Executives)
I can't answer for everybody else, but I can't answer for us. I think if you look at shipping rates, it's a clear example, we're -- I'm going to say, $1,500 for a 40-foot from China, most ports in Asia into the U.K.. That would hit $15,000 at its peak. If I look at airfreight even in last year versus this year, airfreight today is what sea freight was a year ago and has come down dramatically.
If I look at raw materials, cotton polyester, again, come over the top of the mountain, they've come down substantially versus last year. They're still higher than 2 years ago, but they've come down a lot there. If we look at energy, again, well documented in terms of where energy prices are. So there are just some examples of where deflation is happening. Our job at the top of this table, we paid on the way up is absolutely to make sure we grab it on the way down, and we're being quite aggressive on that.
It’s a long transcript, will copy/paste a few paragraphs that may help this BB
Question
Adam Cochrane (Analysts)
It's Adam Cochrane from Deutsche Bank. A couple of questions, please. You mentioned you have a clear line of sight to a 6% to 8% EBITDA margin. Can you share what sales base is required within your clear line of sight and what the gross margin that is really embedded within that 6% to 8% is, please?
Answer
Shaun McCabe (Executives)
Yes. So I'm not going to give you a breakdown of what sort of margin improvements we might make or where exactly we're going to get those EBITDA improvements from. But the sort of things that we're going to see, John spoke to the capturing of deflation in our product cost prices, whether that's raw materials, as we've seen cotton prices dropping, whether it's freight, whether it's energy costs, all of those things, we need to go and get that.
So that is a big chunk but there's other stuff as well. So in the supply chain, we've gone from -- we went from 2 fulfillment centers to 4. And now we've reduced back down to 3 as we've closed our Wellingborough facility. So we've made ourselves more efficient in the supply chain, for example’
But the key driver is the capturing of the deflation because that was a -- if you look at the -- if you think about the bridge that took us from FY '21, shaving the 10% EBITDA margin to 3.6% EBITDA margin for FY '23. If you look at that bridge, the biggest component of that bridge was a gross margin headwind as we saw those cost prices go up
Hi Hex
They said running at 23% including returns are you including returns ? I’ve gone off their conf call
Ditto the container prices etc what they discussed
90% reduction etc was Johns words
Worth noting Boo only started charging for returns in H2
The £10M H2 is factual / audited, it’s fact
However I would focus on the 7% cost of sale increase for distribution which includes returns / containers etc
They point out on the conf call there is a 90% reduction in container costs this to last for example
I’ve listed on a separate post but I think we will see the 15% reduction in revenue worse case but our margin will be closer to 6% than 4%
They were pretty clear they are targeting profit margins
If we do drop 15% H1 we may well drop our stock levels which help our FCF/ working cap days
By choice I would prefer this route, FCF neutral / capex delivered etc
Boo explained the numbers on the conf call
It was £10M revenue H2 being 5M items @ £1.99
If it was 50M items it would have been £100M, they are guiding to no more than £20M top end but expect much lower
Folk - apologies about this, I should have listed as below
The opportunity is even better for Boo, it’s not 4% it’s 7%
This was from one of my posts last week.
Distribution
If we look at the average from 2019 to 2022 this was 16.3% but 15.4% Pre Covid, we know Covid affected its margin in this category
Last year it was whopping 23% and Boo indicate this will come down to normal ex Covid
It’s a crazy number but even working on averages it’s 7%, worth, almost £100M of pure cash / margin
All other data is same
Boo have given us all the information
We know the volume of returns, they told us on the Conf call
They generated £10M H2 so 5M returns @£1.99
Average orders were 3 items making up £56 in total
Total orders p/a 92M give or take
In terms of cost of sales we were 4% higher last year at 24% - average 20% Pre Covid , they expect this to head to 20%
This includes containers down 90% etc
Test / repeat and lead times means they can adjust production sizes quicker, in April alone they slashed 3 weeks off supply times and they see this dropping further in May etc
As I say all the info on the conf call and you can work back to by cross referencing the audited accounts
Mike Ashley just couldn’t make the business work, there may be no value other than stock in Misguided which is what Ashley paid - whatever that value is today?
Whilst he’s been negotiating to bin Misguided he’s bought
£40M of shares in Boo Hoo
We know Boo automated fulfilment centres between USA@ U.K. can handle almost 1.7M items a day, Ashley just doesn’t have that infrastructure
Just on Misguided itself , it’s just a basic brand with maybe £100m to £150M of revenue if that ,Shein will service orders direct from China