Member Info for Okehurst1

H1 trading & sourcing

Question

Anne Critchlow (Analysts)

It's Anne Critchlow from SG. A question please on current trading. What have you seen in March, April, May, and particularly in the U.K. where I think the fourth quarter was quite weak. And then secondly, are you still sourcing 60% from nearshore countries? How is it trending?

Answer

Shaun McCabe (Executives)

So let me take the current trading question. So we haven't shared an update on current trading, but what we have done is given you some guidance around first half performance. And we've pretty consistently said I think now that our expectations are the first half remains challenging.

There's -- if you think about a year ago, we were coming out of Omicron. We're seeing a lot of pent-up demand, John spoke to that, around occasion wear. And year-on-year, the gaps that we see right now are all about occasion wear. Everything else, is there or thereabout, puts and takes, but there or thereabouts. And the gap is occasion wear where -- and that really speaks to the strength of occasion wear last year. So we're not going to give you an update on current trading, but we have given you the first half, which should give you enough to sort of understand where we currently operate in.

Answer

John Lyttle (Executives)

And then on the sourcing point, I would say, yes, pretty much kind of, let's say, 60-40. But what I would say is that everything is back to normal. So the global supply chain crisis where goods were taking double-digit weeks to get. So back to our test-and-repeat model, we could, in a lot of cases, test, but we couldn't repeat because basically the lead time wouldn't allow us to do that.

So if I look at China today, I can order in China, and I can have air freighted in 48 hours in a couple of weeks. So kind of what we had to pivot to in COVID to get more near sourcing because of expensive freight out of Asia, but also slow freight out of Asia. Actually, that's all back to normal. So depending on the product category now, we can pivot quite easily. But there's no delays anymore. And everybody talks a lot about sort of the $1,500 container going to $15,000.

But we don't talk so much about actually the impact on lead time. And particularly for somebody like us, the test and repeat, been able to do the test, but in most cases, not been able to do repeat was quite a big impact.

Since then we have seen Rev B be more prominent across the Boo sites

You can see why Boo wanted an element of control over the Rev B BoD

Beauty

Question

Caroline Gulliver (Analysts)

And my second question just relates to beauty. Just if you could give us some examples of how you're intending to accelerate beauty. I know you've had some wins, but just a few more examples would be good.

Answer

John Lyttle (Executives)

So if I take Debenhams to start, Debenhams now carries, I would say, 85% of the premium beauty brands. So obviously, Debenhams is making huge progress in terms of their beauty business. We're equally -- we're not very strong, I would say, in our core brands in boohoo, PrettyLittleThing, Karen Millen, Nasty Gal, as an example, and with big ambitions in terms of own buy and own brand in terms of development there with those brands.

And then obviously, we've kind of recently invested in Revolution Beauty, and that's obviously given us more insight into the beauty market and what potentially we can do with our internal brand. So quite a lot actually going on in the beauty space

USA launch/ Debenhams

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.

Exceptional’s

Question

Simon Irwin (Analysts)

It's Simon William from Credit Suisse. Three questions for you. Following up on your guidance for next year, can you just tell us how much exceptional cost then there is going to be next year, either or both P&L and on a cash flow basis, it's clearly going to be quite a large number that you're going to be declaring to be exceptional.

Answer

Shaun McCabe (Executives)

Yes. John, should we take the questions one by one.

Answer

John Lyttle (Executives)

Yes. So we'll do one at a time.

Answer

Shaun McCabe (Executives)

So I would say expect mid-20s order of magnitude on exceptionals. It will almost all be to do with the U.S. distribution center launch. And it is things like the building of the team prelaunch. It is the split shipping cost, which is probably the largest single cost. And if you think about that, what we're trying to do there is we'll put as much inventory as makes sense into the U.S. for launch.

And so that will be all of the continuity lines, all of the best sellers, all the new stuff from a moment in time. So we'll split our inbound and newness will go into the U.S. and also into Sheffield.

But what we won't do is we won't move end-of-range products, products in markdown into the U.S.. So there will be a period of time where we service a proportion of U.S. demand from both Pennsylvania and from Sheffield. And so we'll create those split shipments, and it will be for a period of time. And so that creates some exceptional launch costs.

Just on capex

Simon Bowler (Analysts)

Okay. And then one final one, if I may. Just I think your guidance for next year kind of implies CapEx to sales of around about 5%. Is that kind of a sensible number to be thinking about over the mid-time and aligning with that EBITDA guidance that you've given?

Answer

Shaun McCabe (Executives)

So yes, I would say -- I mean, I don't think about it as a percent of sales, typically, Simon, because some of our CapEx is a bit lumpy. So I would say if you look at the 2 big things, CapEx spend this year will be U.S. fulfillment, and it will be the U.K., the Sheffield second phase automation, which is a capacity play. And then ongoing, we've obviously got a capitalized development time as our engineers are always building new products and features.

So our CapEx can be a bit lumpy. But of course, the guidance that we've given GBP 80 million to GBP 90 million, I think, puts us in the right space for next year. I expect the following year to probably be lower than that because we won't have some of those lumps. So yes, look, you could say 5%, but I don't really think about it as a percent of sales because of that lumpiness.

Boo are forecasting £79M top range EBITDA profit

Less cash out

exceptional costs £25M setting up USA is their figure

Capex £85M

Finance above £12M - legals for Rev B ? All in £16M to £15M maybe

£125M cash burn vs £79M EBITDA

£46M cash cap

Add back

COGS / cotton prices

Elevated percentage cost of sales 2022 due to Covid

Can Boo hit 6% EBITDA this year ? They ‘only ‘need another £21M and they turn out a headline £100M ?

As investors we make the call can they squeeze that out over the year, my opinion I think it’s doable

Then we look at FCF, can they squeeze the inventory to generate another £20M plus ?

Again it looks possible

Hi T4G

There is a ‘theme’ throughout the transcript of the BoD and especially the CFO of reducing inventory via ‘ test /repeat ‘ which they could not do when containers were $15k - now $1500 and lead times took serious time

The CFO stressed focusing on higher margins as well, the £125M invested at the Sheffield fulfilment centre including automation and the reduction in £50M of costs including people and how there is more to come.

As Hex says they are talking their book but as they pointed out on the slides to the analysts their cost of sales increased down to Covid and they are now back to normal costs

Posted at the weekend, I can see 5.5% margin and FCF neutral or as close as, only an opinion based on working back the cost base so I could be wrong

Adjusted EBITDA for FY '24 is expected to improve year-on-year as a result of operational gains, cost efficiencies and cost deflation in our supply chain with adjusted EBITDA margins of 4% to 4.5% and adjusted EBITDA of between GBP 69 million to GBP 78 million, in line with market expectations’

£13M cash generated on a straight line basis and then whatever % they reduce as they indicate below - make your own call on that

They must have had an idea as they were almost through H1 when they said the statement

Presenter Speech

Shaun McCabe (Executives)

Okay. Thanks, John, and good morning, everybody. It's great to be here for what is my first boohoo results presentation. I'm now going to walk you through the financial review as well as talk to delivering sustainable return on investment as we get the group back to growth.

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.

It's lead and rightsized for the current environment and gives us the right platform as we get back to growth. Cash is queen, and careful cash management is a key focus area. And the cash that we are generating is then being selectively invested to support future growth opportunities, of which there are many.

And on inventory, we've significantly reduced this, down 36% year-on-year as we manage through a period of uncertain demand. 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.

If we look at page 124 of the annual accounts at the inventory line, Boo brought this down to close on 10% of revenue

from 14% year before and generated £100M of cash

If revenue has fell 15% from £882M then we could see £13M FCF on a straight line basis, however that doesn’t include the benefits explained in the notes below of the analyst meeting

Will be interesting to see the inventory £number which they guide to being reduced

They have 64 stores in the U.K. apparently

Their total online sales from their own websites was £7M

down from £10M

Their stores revenue was down from £21.8M to £19M

Plus of course a sizeable marketing budget

Quiz total revenue is £37M

M/cap £6M

Without size , bots/ automation/ ability to scale especially USA you have a problem

Even Big Mike can’t make money via on line fast fashion

Hi Hex

Thanks for the feedback / comments

ATB

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