Pure-play online fashion retailer BooHoo.Com (LSE: BOO) today shocked investors with a significant profit warning that sent shares tumbling by as much as 40%. The update warned that profit for the full year is now expected to be around 26% lower than had previously been stated, with a disappointing final two months of the year being the major reason.
The announcement is a surprise because BooHoo.Com had announced as recently as mid-October that it was on-track to meet full-year expectations, but since then a marketing push has not delivered the level of sales that it anticipated. Part of the reason for this seems to be a push by other retailers to make up for lost sales in the unseasonably warm autumn period. As a result, BooHoo.Com’s sales numbers did not see the anticipated step-up that had been anticipated in the final two months of the year and it now expects revenue to be around £140 million (versus previous guidance of £157 million) and EBITDA to be around £14 million (versus previous guidance of £19 million) for the full year.
Still, the company managed to increase sales by 25% in the final four months of 2014, which is an impressive rate of growth given the challenging trading conditions that were present. Furthermore, a number of other clothing retailers also posted sales figures that were below those that had been forecast during this period.
Looking Ahead
BooHoo.Com expects sales growth to remain at around 25% for the remainder of the year which, given the fact that consumer spending remains under pressure, still appears to be an attractive rate of growth. Clearly, it is an uncertain period for the company, but its long-term future appears to be relatively bright.
For example, it has growth potential both inside and outside of the UK, with its European operations, for instance, delivering top line growth of 47% in the ten months to 31 December. In addition, it has a substantial cash pile of £60 million, has increased its gross margin by 0.3% to 59.9% during the course of the current financial year, and is seeing active customer numbers rise at a rate of 31% versus the prior year.
So, while today’s profit warning is disappointing, it could provide an opportunity to buy a slice of BooHoo.Com at an even more appealing price. Certainly, investor sentiment has been hit hard and may take time to recover, but for long-term investors BooHoo.Com remains a relatively appealing online retail play. And, with a price to earnings growth (PEG) ratio of 1.4, BooHoo.Com still seems to offer growth potential at a relatively reasonable price.