Member Info for Okehurst1

Lots of other stuff but you get the gist

Contd

‘We estimate group CAC has already risen to £26-27 per customer (Boohoo doesn’t disclose CAC) and this includes the UK, where CAC will be lower due to the strong brand, market position and high sales retention (i.e. low customer churn). Therefore, US CAC will likely be materially higher than the UK and the company will need to accelerate marketing to build brand and communicate the new delivery proposition, which could result in margin pressure.

On top of this, sales retention for the International division (EU, US, ROW) is low at an implied 44% (i.e. 56% of revenue churns each year) and assuming this is the same figure for the US, this implies customers stay for an average of just under two years. We attempt to analyse the potential LTV/CAC in the US, using the information Boohoo has previously disclosed and our own scenario analysis:

 US scenario one: Using International sales retention of 44% and using the group customer economics, LTV/CAC would be as low as 1.5x – effectively uneconomic to spend on marketing, being highly margin dilutive.

 US scenario two: Assuming the US sales retention improves with the new distribution centre and shorter deliver times to the group average in H1 FY23 of 73% and using the group customer economics, LTV/CAC would improve to 3.0x – making marketing more efficient and limiting margins.

 US scenario three: Assuming the US sales retention improves to the UK figure in H1 FY23 of 91% post the new distribution centre and using group customer economics, LTV/CAC would improve to 9.0x – making marketing highly efficient and the potential to recover margins highly likely.

Based on our analysis, unless customer economics improve materially (i.e. towards the UK), we believe any US growth could be margin dilutive and potentially put Boohoo in an ever worse position. Further challenges to accelerating US growth and improving customer economics will be the competitive environment, namely Shein, and the weakening macro environment and a likely lower contribution margin (than the group average) as the new distribution centre in Atlanta is manually operated and not automated like the Sheffield distribution centre in the UK. Therefore, as it stands today, in our view, it remains uncertain whether Boohoo can return to growth’

Hi Jeremy

Tbf to the Analyst his report on Boo is very data driven, I felt compelled to purchase it this week, makes for an interesting read

Btw I would prefer to consider the opposite side to my trade this way than the likes of PP/ Pedro who are apparently not invested in Boo but spend all day / night posting on a stock they have no trade in?

Couple of snippets that I thought interesting to the BB ;

‘Boohoo is now spending more on marketing than any other listed peer (+600bps over eight years), while the recent sales performance has been the worst of all European listed eCommerce peers. Active customers are declining, while the marketing to sales ratio hit an all-time high of 12.3% in H1 FY23 and is likely to go higher with the new US distribution centre (opened in August 2023). We estimate Boohoo has seen CAC more than double in the last five years and given the low AOV this potentially puts significant pressure on growth and margins’

What can the BoD do Jeremy ? Buy shares ?

Some thoughts

Without Big Mike buying this week think we can say the share price would be lower today as the Shorts have doubled down

Do we drop back now whilst MM’s pick up shares again at the price MA is prepared to pay with their margin and we get a repeat of the past few months at 32p to 35p but 27p to 31p TR1 … repeat ?

No need for MA to bid for the business ,he can take his stake to 29.99% on the cheap -in his head -and maybe take seats on the BoD ?

He gets a look under the bonnet same time?

Point being, can’t see us hitting the sub 25p range unless Boo put out a bad TU but can we see any update until the New Year?Mike nibbles away until he hits the 29.99% and he gets a better understanding of the business from the inside ?

How we play out the next few months ?

Good spotting T4G - bit of fun stat

As Jeremy said it’s , Big Mike vs The Shorts head to head now

Nb we ‘ only ‘ burnt £41M of net cash as we squeezed inventory, we won’t repeat that H2 following yesterdays Conf call

Hex,

Let’s hope trade insurance providers to Boo suppliers have VAR switched off and don’t get spooked by negative Bank debt of £60M to £70M come year end.

It might be needs must for Boo to finance the head office?

Nb have you seen the Canacorred report mentioned on other posts today?

Hex, it’s good to have you on the BB to discuss this stuff helps us all

I went off the headline £12M outflow first thing yesterday but working on actual negative cash Boo including EBT it was £41M

No idea how EBT is not a cost above the line btw but that’s another conversation

EBITDA is just a line in the sand / benchmark to work from really

Hex

Just back to net debt year end

Your calc on cash burn yesterday was on the mark, including EBT totalled £41M

Assume EBT doesnt reoccur H2,(£15M) we can say £25M cash burn H1 that should continue H2?

If that’s the case

If Boo hit £60M EBITDA for full year and capex is £40M H2 as per their forecast they have £65M cash out vs £30M in

If bank debt is £35M today it takes bank debt to £70M year end

That assumes they can stock up USA without increasing £inventory from current position

What’s your view on above ? Am I missing anything ?

Hi Hex, thanks for the reply

Good chat Hex/Reardon/Broke

The bum note for me yesterday the fact they only retained .75% from capturing inflation / cost cutting and in effect as Hex says they put it all back into price cutting.

I thought they would have nicked more, even 1.9% would have seen us at 5.5% and the revised business model would have been deemed on the right path.

So year end we have £60M EBITDA and quite possibly £60M to £75M of banking debt

To move the share price up Boo need a capital event, be that an MBO - although Debt isn’t in their DNA they heading to a debt balance either way -

Or quietly put the business on the block for a sale, it would be attractive to Shein, offering them U.K./ Europe / USA distribution network in one swoop

Any views on above? What’s the odds on either ? Can’t see a material jump in the share price after yesterday so we need that capital event ?

Hi T4G

Not saying 100% but a capital event ‘ to create shareholder value be that spin off Debenhams marketplace or Boo receives a bid / MBO

Possibilities not a certainty, so what’s the risk/reward for II Shorts, Boo ain’t a £zero, what’s the price they exit ?

Tbf they called this one spot on from £4 but when do they take profits? Until they do or a capital event we are were we are so to speak, we just find a new -probably -tight range whatever that is ?

Think we can say the II Shorts may well have reached the view yesterday that the risk / reward is not worth holding out for a few pence more, Boo EBT and MA may well add this week who knows but we can say Boo ain’t a zero so when do they exit ? Plus suggest Boo is now exposed for the next 6 months at least to a capital event one way or another ,not sure what the latter percentage risk is but it has to be a possibility.

Jefferies have 5% EBITDA on the GMV

We just didn’t get that £GMV unfortunately but we do know Debenhams is profitable so they say

Wolf

It’s a GMV model, they are selling 3rd party goods, no capex , no stock

If it’s Boo stock it will come from Sheffield but this only makes up a percentage of sales not the whole.

Hi Wolf

Good points

I need to review the conf call again regarding the automation data it was some jump in productivity

Re Debenhams, first time they let slip ‘ GMV ‘ but didn’t provide the £headline

This platform is basically a tech /marketing play requiring little capital that has no requirement for the fulfilment centres.

An easy win is for Boo to spin this off with Alshaya Group to maximise the opportunity, makes sense to me.

Hi Hex

Thanks for the response - throw in exceptional’s and we are there give or take

Hi Hex

Thanks for the reply - fair comment

Could we look at it this way?Trying to see debt year end

We had £5M net cash back in April

We now have £35M of net debt after spending £35M on capex

if we have another £40M of capex H2 that’s £75M full year

Boo indicate they are there with inventory so no more FCF cash to be had here ?

They indicate 4% to 4.5% at best for margin so net debt year end must be £75M if all other costs are same ? Ex EBT

We then look at the total product mix and can they squeeze more margin from the ‘premium ‘ brands ? Is it enough to bring the overall margin above 4.5% ? Without doing so and assume their full year forecast for revenue is correct then the best year end result is £70M EBITDA and net debt £70M

What’s your call ? Does that look right to you ?

My take on today / reflection after conf call

Think it’s fair to say the BoD were not as confidant with today’s presentation as they were back in May in terms of delivery for H2 but they did deliver on their gross margin target H1 and they had said 10% to 15% down in revenue H1 a

FCF at minus £12M after £35M capex

To me they generated £23M of cash but spent it on capex and used £12M of debt to cover / top up to the £35M in total - suggest it’s the only way to measure the business Performace

They say apparel inflation is 8% which they didn’t pass on and they passed on a big chunk of deflation for Air Freight keeping their prices lower - net net they kept less than 1%

3.6% to 4.3%

Any smaller brands are not doing as well are rolled into Debenhams

It doesn’t look like any more inventory savings of note - the CFO was pretty clear

Outcome

4.5% EBITDA

£50M to £70M EBITDA

IF Boo are not going to retain more of the margin saving then other than cost cutting people then FCF negative has to widen year end to the 1X EBITDA

Helicopter view that’s the crux of where we stand today, I was hoping the would keep 2% of the 8% as a figure but they reasoned why it was under 1%?

Is the above a fair reflection ? Hex what do you think ?