Boohoo Regulatory News (BOO)

28 September 2022

The information contained within this announcement is deemed by the company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of the domestic law of the United Kingdom by virtue of the European Union (Withdrawal) Act 2018 (as amended) ("UK MAR"). Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

boohoo group plc - interim results for the six months ended 31 August 2022

"Leading the fashion eCommerce market"

Summary of first half financial performance

· Gross revenue before returns up 4%, reflecting underlying growth and ongoing improvements in average order frequency and spend per customer, offset by weaker than anticipated consumer demand

· Net revenue declined 10% in the first half year:

o  As previously guided returns rates up significantly year on year, and ahead of pre-pandemic levels

o  UK revenues declined 4%, softening through the second quarter as inflationary pressures increased and consumer demand appears to have been impacted by cost of living pressures.

o  International revenues declined 17%, with the proposition continuing to be impacted by extended delivery times. Markets such as Australia are starting to see improvements from reduced delivery times, with lower rates of year-on-year declines in revenues as the first half progressed

· Gross margin 52.5%, down 210 basis points year-on-year, in line with expectations, as a result of inbound freight inflation. Gross margin performance improved 210 basis points versus the second half of the prior financial year due to tighter inventory management

· Adjusted EBITDA £35.5 million, with margin at 4.0% impacted by freight and logistics inflation, weaker than anticipated consumer demand and high cost inflation from the macro-economic environment, as well as strategic investments across the multi-brand platform

· Free cash outflow was £2.7 million (1H 22: 157.3 million outflow), following capital expenditure of £38.7 million. Closing net debt of £10.4m (1H 22: net cash of £98.4m, FY 22: net cash of £1.3 million) reflects multi-year investments, including £96 million on unencumbered freehold assets since February 2020

· Significant liquidity headroom for selective investment programme with gross cash of £315 million at period end

Near term focus on improving operational performance

As outlined previously in its full year results and first quarter update, the near-term focus for the Group is on key projects that will optimise operations and improve future performance:

· Sourcing: sourcing from near-shore markets increased significantly in the first half, up more than 10 percentage points year-on-year. Heading into the second half, the Group has lower levels of forward commitments on inventory, giving greater flexibility into the uncertain peak trading period

· Inventory management: inventory levels are leaner, with approximately 15% fewer units in stock at the end of August, compared to the end of February. Compared to 2H FY22, inventory turn and gross margin improved, with the latter increasing by 210 basis points, with the year on year decline in gross margin driven by inbound cost pressures as previously stated

· Overheads: macro-economic inflationary factors have contributed to overhead increases year on year and investments into recently acquired brands. An increased focus is being placed on overhead costs in an uncertain consumer backdrop to improve profitability

Robust financial position underpins strategic investments

The Group continues to maintain a robust balance sheet, with £315 million of gross cash and low levels of net debt (£10 million) at the end of the first half, giving significant liquidity headroom that supports selective investments into strategic growth initiatives.

· Automation in our Sheffield distribution centre went live in late September, and is expected to drive material cost savings and efficiencies with a five year estimated payback on £125 million of capital expenditure

· US distribution centre on track to go-live in the first half of the 2023/24 financial year, supporting significant improvement in our customer proposition from a reduction in international delivery times

· Further progress made with Debenhams online marketplace, with a new senior leadership team, upgrading of its technology stack; and rapid expansion of marketplace partners, with 80 new partners onboarded in the first half

· New Customs Warehouse went live in July, with duty savings expected in the second half

· Wholesale sales portal launched, giving greater choice and flexibility to partners, and future operational efficiencies

Outlook and FY23 guidance

As a result of the impact that the macro-economic and consumer backdrop has had on the Group's revenues in the first half, our expectation is for a similar rate of revenue declines to persist over the remainder of the financial year if these conditions continue.

Increases in inflation-driven costs as well as the resultant operational deleverage from lower sales than previously anticipated mean that adjusted EBITDA margins are likely to be between 3% and 5%, compared to the previously guided range of 4% and 7%. 

It is the Board's view that by focusing near term on optimising its operations, the Group will be well-positioned to improve future profitability and financial performance through self-help via delivery of key projects and cost efficiencies and through easing of macro-economic headwinds facing both consumers and businesses.

Longer-term competitive positioning and opportunity to take market share unchanged

Over the last three years, the Group has made notable progress towards achieving its long-term growth ambitions. It has also made significant investments during this time and will continue to make selective investments to support its platform and brands, in a manner that reflect the current macro-economic environment.

Since 1H20, the group has:

· Grown significantly with total revenue +56%, (UK: +73%, International: +35%), during a period in which clothing sales in key markets remain broadly flat versus 2019

· Increased in its largest market, the UK, its share of spend online from 5.6% to 8.4%, with price product and proposition resonating strongly with consumers

· Increased its active customer base to 19 million active customers, up from 13 million, through organic growth and an increased brand portfolio

· Extended target addressable market through acquisitions, with up to 500 million potential customers in key global markets

· Built infrastructure capable of supporting in excess of £4 billion of net sales, with automation driving efficiencies and an international distribution centre enhancing our proposition

· Developed numerous growth opportunities through its direct to consumer proposition, Debenhams and strategic partnerships with select partners globally

· Made further progress on its sustainability strategy with Thurmaston Lane manufacturing facility launched in Leicester, UK in the first half and the PrettyLittleThing marketplace, a clothing resale platform, launched in August 2022

John Lyttle, Group CEO, commented:

"Performance in the first half was impacted by a more challenging economic backdrop weighing on consumer demand. Over the last three years the Group has seen significant gains in market share achieved across our brand portfolio, particularly in the UK where our price, product and proposition resonate strongly with customers. We have a clear plan in place to improve future profitability and financial performance through self-help via the delivery of key projects, which will stand us in good stead as macro-economic headwinds ease. We remain confident in the long-term outlook, as we continue to offer customers unrivalled choice, inclusive ranges and great value pricing, giving them even more reasons to shop with us."

Investor and analyst webcast

boohoo group plc will today host a presentation video webcast for analysts and investors at 8.45am (UK time) via the following link: https://webcasting.buchanan.uk.com/broadcast/62f125bd2c785a4107c36427

A replay will subsequently be available the same day via the same link. 

boohoo group plc's interim results are available at www.boohooplc.com .

About boohoo group plc

"Leading the fashion eCommerce market"

Founded in Manchester in 2006, boohoo is an inclusive and innovative global brand targeting young, value-orientated customers, pushing boundaries to bring its customers up-to-date and inspirational fashion, 24/7.

In 2017, the group extended its customer offering through the acquisitions of the vibrant fashion brand PrettyLittleThing and free-thinking brand Nasty Gal. In March 2019, the group acquired the MissPap brand, in August 2019 the Karen Millen and Coast brands and in June 2020 the Warehouse and Oasis brands, all complementary to the group's scalable, multi-brand platform. In January 2021, the group acquired the intellectual property assets of Debenhams, with the goal of transforming a leading UK fashion and beauty retailer into a digital department store and marketplace through a new capital-light and low-risk operating model. In February 2021, the group acquired the intellectual property assets of UK brands Dorothy Perkins, Wallis and Burton. As at 31 August 2022, the boohoo group had 19 million active customers across all its brands around the world.

Cautionary Statement

Certain statements included or incorporated by reference within this announcement may constitute "forward-looking statements" in respect of the group's operations, performance, prospects and/or financial condition. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words and words of similar meaning as "anticipates", "aims", "due", "could", "may", "will", "should", "expects", "believes", "intends", "plans", "potential", "targets", "goal" or "estimates". By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. No responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast. This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares or other securities of the Company. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Statements in this announcement reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this announcement shall be governed by English law. Nothing in this announcement shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.

Review of the business

Group overview

Group revenue for the half-year declined by 10% (9% CER) on the first half of the previous year to £882.4 million (2021: £975.9 million, 2019: £564.9 million) and increased by 56% on the first half of three years ago, pre-pandemic. Comparison with three years ago demonstrates the growth of the business excluding the exceptional growth and low returns during pandemic periods. Gross sales before returns increased on the prior half-year by 4%, indicating the continued momentum of the group's brands as they gain market share. However, with returns higher than in the pandemic period, net revenue shows a decline.

Adjusted EBITDA was £35.5 million (2021: £85.1 million, 2019: £60.8 million), a decrease of 58% on the first half of the previous year, as a result of: softer consumer demand, elevated returns rates, freight and logistics inflation, high cost inflation from the macro-economic environment, as well as strategic investments across the multi-brand platform. Gross margin of 52.5%, declined 210 basis points year-on-year due to elevated inflationary cost pressures. Gross margin did, however, improve compared to the second half of the previous financial year with tighter inventory management, and our flexibility in moving supply chain sources away from the Far East, with its associated elevated freight costs, to Europe, reducing product costs.

Adjusted EBITDA margin reduced to 4.0% (2021: 8.7%, 2019: 10.8%), but was flat when compared to the second half of the previous financial year. International distribution costs have continued to be significantly elevated against pre-pandemic rates, but we are seeing some small, steady rate reductions as the year progresses. Our more recently acquired brands are demonstrating improving profitability but continue to operate with higher overheads as a percentage of revenue compared to the much larger and more established brands we own. Central overheads increased as a percentage of net sales in the first half due to the operational deleverage from a decline in net sales year-on-year, coupled with inflationary cost pressures as a result of the macro-economic backdrop.

Loss before tax was £15.2 million (2021: Profit £24.6 million, 2019: Profit £45.2 million). Adjusted diluted earnings per share was 0.30p, down 92% on the prior half-year. Basic earnings per share was negative 1.19p, (2021: positive 1.44p, 2019: positive 2.88p).

Operating cash flow was £41.3 million (2021: £21.3 million, 2019: £55.9 million). Net cash flow was £213.3 million inflow (2021: £127.6 million outflow, 2019: £15.5 million inflow), following capital expenditure of £38.7 million and a £225 million inflow from the group's newly committed £325 million Revolving Credit Facility. Our net cash balance (cash less bank debt) at the period end decreased to £10.4 million net debt (2021: £98.4 million net cash, 2019: £207.3 million net cash), whilst the actual cash balance was £314.6 million.

Technology

Investment has continued in key technology projects, including the delivery of Customs Warehousing, which will improve gross margin on overseas sales, and building of systems for the forthcoming US distribution centre. The Sheffield distribution centre servicing PrettyLittleThing transitioned from a third-party provider to in-house, requiring significant IT development and implementation and was successfully completed in June, with 1,400 colleagues joining the boohoo family. In addition, substantial progress has been made on our automation project ahead of go-live in September. Further improvements have been made to the group's wholesale operations, with the implementation of a new sales portal giving greater choice and flexibility to partners, and greater operational efficiencies.

Distribution centres

The group continues to operate four warehouses: the long-established Burnley site, which serves boohoo, boohooMAN, MissPap and Debenhams; the Sheffield facility for PrettyLittleThing; Wellingborough, which houses Nasty Gal, Coast, Oasis and Warehouse; and Daventry, from which the newer brands Dorothy Perkins, Burton and Wallis operate, as well as Karen Millen.

The project to automate the Sheffield warehouse reached completion and go-live in September, with significant capital expenditure of £11 million incurred in the first half year. Additional costs of working of £2 million have been incurred during the construction period, disrupting the normal efficiency, and these are included in exceptional costs. Total capital expenditure for this project is anticipated to total approximately £125 million, in line with prior guidance, driving significant efficiencies and an anticipated payback of approximately five years.

Performance by market

UK

The group's largest market continues to be the UK, accounting for 62% of group revenues (2021: 58%). Revenue has declined by 4% on the prior half year, although the pre-pandemic three-year growth remains robust at 73%. Sales before returns increased on the prior half year by 12%, but the returns rate increased substantially from the low level during the latter stages of the pandemic last year, resulting in a net revenue reduction. However, we are encouraged by the performance of our more recently acquired brands as they pick up momentum from a low base, continued progression made by our Debenhams digital department store, as well as the significant gains in market share achieved across our brand portfolio over the last three years.

Gross margin decreased slightly from 51.7% to 50.2% as a result of elevated freight cost pressures that did not impact performance in the first half of the previous financial year.

USA

Performance in the USA has been below expectations, with revenue declining 29% on the prior half year, albeit revenue growth over the three-year period is strong at 60%. Delivery times to the USA are still elevated compared to pre-pandemic levels, and this is undoubtedly impacting demand, although the situation is improving slowly.

Gross margin is high, although lower than the prior half year, reducing from 61.5% to 60.2%. Distribution costs have remained high due to the ongoing elevated airfreight costs and remain materially above pre-pandemic levels.

Rest of Europe

Although revenues in Rest of Europe declined 2% in the first half, the region saw a return to growth in the second quarter at +5%, with an improving trend in our direct-to-consumer brands and the positive benefit of our wholesale business. Encouragingly, our more recently acquired brands are making strong progress, albeit from a low base. Growth on the pre-pandemic period three years ago is 17%, and comfortably ahead of the broader market which continues to be broadly flat versus pre-pandemic levels.

Gross margin declined marginally from 53.6% to 52.7%.

Rest of world

Rest of the world growth was 14%, driven by the success of wholesale sales to our partners in the Middle East. In addition, markets such as Australia are starting to see improvements from reduced delivery times, with lower rates of year on year declines in revenues as the first half progressed.

Gross margin reduced from 55.7% to 50.8% with profitability continuing to be impacted by elevated freight costs and high distribution costs.

Sustainability

In line with our policy on supply chain transparency, we published the group's 2022 sustainability strategy and updated the tier 1 global factory supply chain list in August 2022, available on our corporate website.

We have continued to add more sustainable clothing ranges across our brands and have entered into the second year of partnership with CottonConnect to use sustainable cotton from Pakistan. In the UK, manufacturing of our own clothing at Thurmaston Lane commenced in the first half, and will ramp up in the second half of the year.

PrettyLittleThing launched marketplace, a clothing resale platform, in August 2022. This site enables anyone to sell their used garments online, contribute towards sustainability, and gives the group an entry into a high-growth area of the clothing market. In addition, the trial of a new partnership with clothing resale service, Thrift+ was launched.

Solar panels on the Burnley distribution centre are active, with the potential to generate 2.7 megawatts of electricity to support the power requirements of our operations. This is believed to be a significant installation of its kind for businesses.

Financial review

Group revenue by geographical market

KPIs

Group

1. Defined as having shopped in the last 12 months

2. Defined as number of orders in last 12 months divided by number of active customers

3. Defined as the percentage of website orders taken to internet sessions

4. Calculated as gross sales including sales tax divided by the number of orders

Consolidated summary income statement

Taxation

The group recognised a tax credit of £0.5m, an effective rate of 3.3% (2021: 27.6%, 2019: 20.1%). This is lower than the tax credit calculated when multiplying the loss before tax at the blended UK statutory rate of tax for the year of 19%, due to disallowable expenses and depreciation of buildings in excess of capital allowances.

Earnings per share

Basic earnings per share for the first half of the year decreased by 183% from 1.44p to -1.19p. Adjusted diluted earnings per share was 0.30p, down 92% on the first half of the prior year.

Consolidated statement of financial position

Working capital has improved due to tighter inventory levels supporting the brands within the group. A new revolving credit facility of £325 million with a three-year term was agreed in March 2022 to support the group's liquidity requirements and provide a greater degree of headroom and was fully drawn down to provide sufficient buffer for intra-month trading and investment activity.

Liquidity and financial resources

Operating cash flow was £41.3 million (2021: £21.3 million, 2019: £55.9 million). Net cash flow was £213.3 million inflow (2021: £127.6 million outflow, 2019: £15.5 million inflow), following capital expenditure of £38.7 million and a £225 million inflow from the group's newly committed £325 million Revolving Credit Facility. Our net cash balance (cash less bank debt) at the period end decreased to £10.4 million net debt (2021: £98.4 million net cash, 2019: £207.3 million net cash). Capital expenditure of a substantial £38.7 million was invested in warehousing and office facilities and IT systems infrastructure for future growth. The closing cash balance for the group was £314.6 million.

Outlook

As a result of the impact that the macro-economic and consumer backdrop has had on the Group's revenues in the first half, our expectation is for a similar rate of revenue declines to persist over the remainder of the financial year if these conditions continue.

Increases in inflation-driven costs as well as the resultant operational deleverage from lower sales than previously anticipated mean that adjusted EBITDA margins are likely to be between 3% and 5%, compared to the previously guided range of 4% and 7%. 

It is the Board's view that by focusing near term on optimising its operations, the Group will be well-positioned to improve future profitability and financial performance through self-help via delivery of key projects and cost efficiencies and through easing of macro-economic headwinds facing both consumers and businesses.

Other financial guidance for FY23 is outlined below:

· Underlying depreciation and amortisation of approximately £60 million

· Net interest charge expected to be approximately £10-11 million reflecting interest rate increases (£7-8 million previously)

· Capital expenditure unchanged at £100-120 million; and

· Adjusting items of approximately £60-65 million, of which around £40-45 million relates to non-cash items, including: share-based pay, acquisition intangible amortisation, exceptional costs of Sheffield automation and warehouse commissioning costs

28 September 2022

Unaudited consolidated statement of comprehensive income

for the period ended 31 August 2022

1. Net fair value gains/losses on cash flow hedges will be reclassified to profit or loss during the three years to 31 August 2025.

Unaudited consolidated statement of financial position

at 31 August 2022

Unaudited consolidated statement of changes in equity

Unaudited consolidated cash flow statement

for the period ended 31 August 2022

Notes

(forming part of the interim report and accounts)

1 Accounting policies

General information

boohoo group plc is a public limited company incorporated and domiciled in Jersey and listed on the Alternative Investment Market (AIM) of the London Stock Exchange. Its registered office address is: 12 Castle Street, St Helier, Jersey, JE2 3RT. The company was incorporated on 19 November 2013.

Basis of preparation

The interim condensed financial statements for the six months to 31 August 2022 have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the UK. The interim financial statements should be read in conjunction with the group's Annual Report and Financial Statements for the year ended 28 February 2022, prepared and approved by the directors in accordance with UK-adopted international accounting standards and the Companies (Jersey) Law 1991 applicable to companies reporting under IFRS.

The interim condensed financial statements contained in this report are not audited and do not constitute statutory accounts within the meaning of Companies (Jersey) Law 1991. The Annual Report and Financial Statements for the year ended 28 February 2022 has been filed with the Jersey Companies Registry. The auditors' report on those accounts was unqualified and did not include reference to any matters on which the auditors were required to report by exception under Companies (Jersey) Law 1991.

The group's business activities together with the factors that are likely to affect its future developments, performance and position are set out in the Business and Financial Reviews. The Financial Review describes the group's financial position, cash flows and bank facilities.

The interim financial statements are unaudited and were approved by the board of directors on 28 September 2022.

Going concern

The directors have reviewed the group's forecast and projections, including assumptions concerning capital expenditure and expenditure commitments and their impact on cash flows, and have a reasonable expectation that the group has adequate financial resources to continue its operations for the foreseeable future. For this reason, they have continued to adopt the going concern basis in preparing the financial statements.

In preparing the interim announcement, the directors have also made reasonable and prudent judgements and estimates and prepared the interim announcement on the going concern basis. The interim announcement and management report contained herein give a true and fair view of the assets, liabilities, financial position and profit and loss of the group.

Accounting policies

The interim financial statements have been prepared in accordance with the accounting policies set out in the group's Annual Report and Financial Statements for the year ended 28 February 2022, with the addition of the policy on equity instruments.

Equity instruments

Equity instruments are those that are held over an indefinite period of time and that may be disposed of in response to the needs of the group. Purchases and sales are recognised on the trade date. The group has decided to classify equity investments as fair value through other comprehensive income.

Significant estimates and judgements

The preparation of financial statements in conformity with IFRS as adopted by the UK requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. The estimates and assumptions are based on historical experience and various other factors believed to be reasonable under the circumstances. Actual results could differ from these estimates and any subsequent changes are accounted for when such information becomes available. The judgements, estimates and assumptions that are the most subjective or complex are discussed below and are unchanged from those at 28 February 2022:

Exceptional items

Exceptional items are those of significant size and of a non-recurring nature that require disclosure in order that the underlying business performance can be identified. The exceptional costs in these interim statements include additional costs associated with the automation project in the Sheffield facility. Such additional costs do require estimation by management.

2 Principal risks and uncertainties

The board considers the principal risks and uncertainties which could impact the group over the remaining six months of the financial year to 28 February 2023 to be unchanged from those set out in the group's Annual Report and Financial Statements for the year ended 28 February 2022, which in summary are: on-going COVID-19 impact on trading; competition risk; fashion and consumer demands risk; systems and technical risk; supply chain risk; loss of key facilities; people risk; negative perception of the brands; and financial risk. These are set out in detail on pages 34 to 39 of the group's Annual Report and Financial Statements for the year ended 28 February 2022, a copy of which is available on the group's website, www.boohooplc.com.

3 Segmental analysis