Shares in online rag retailer Boohoo.Com (LSE: BOO) edged lower after the group’s full-year results were published on Wednesday, but Supergroup (LSE: SGP) shareholders enjoyed a 5% boost, after the ‘bricks and clicks’ fashion retailer published a strong year-end trading update.
In this article I’ll take a look at key numbers from today’s announcements, and ask which of these two companies is likely to deliver the biggest gains for investors over the next year.
No tears at boohoo
On the face of it, boohoo.com’s results were very encouraging. Sales rose by 27% to £139.8m last year, while the firm’s gross profit margin — a key measure for retailers — rose from 59.1% to 60.8%.
However, a big rise in headcount, plus increased investment in marketing, IT and warehousing, meant that boohoo’s operating profit margin fell from 9.9% to 7.6% last year, leaving earnings per share unchanged at 0.75p.
This result was 16% lower than the latest consensus forecasts of 0.89p per share, and puts renewed pressure on boohoo.com to deliver strong growth over the next year, in my view.
Looking more closely at last year’s figures, I was also a little concerned to see that revenue growth in the UK — the firm’s biggest market — slowed from 47% during the first half of last year, to just 22% during the second half.
Boohoo blames this on aggressive high-street discounting, but shareholders will need to keep a close eye on this trend, while also monitoring international growth.
Supergroup shows promise
SuperGroup didn’t release its results today, but did publish a year-end trading update, providing sales figures (but not profits) for the year ending 25 April 2015.
Total group revenues rose by 15.8% during the second half of the year, while full-year sales were £484.7m, a 12.5% increase on the previous year.
Encouragingly, like-for-like retail sales, which includes online, rose by 17.5% last year: the laggard was the firm’s wholesale revenue, which rose by just 4.5%, after slowing dramatically in the second half due to the loss of a major customer.
Boohoo vs SuperGroup
Both boohoo.com and SuperGroup appear to be doing pretty well — but which firm is likely to deliver the biggest gains for investors over the next year?
Here’s how these two companies compare:
| Â |
Boohoo.com |
SuperGroup |
|
2014/15 earnings per share (eps) growth |
0% (actual) |
12.9% (forecast) |
|
2014/15 P/E |
36 (actual) |
18.0 (forecast) |
|
2015/16 forecast eps growth |
29% |
11% |
|
2015/16 forecast P/E |
24.1 |
16.3 |
SuperGroup chief executive Euan Sutherland confirmed today that the firm is expected to meet previous guidance, so it would be a surprise if the firm’s final results were much different to the latest forecast figures, which I’ve used above.
Given this, I’d have to suggest that the advantage lies with SuperGroup, which appears to have stronger momentum in terms of earnings growth, and trades on a fairly reasonable 2016 forecast P/E of 16.
Although boohoo.com could leap ahead this year, recent evidence suggests that costs and scale become an increasing challenge for online retailers as they expand: for example, earnings per share fell at ASOS in 2014 and are expected to be broadly flat in the current year.
I believe SuperGroup could outperform boohoo.com over the next year — but there’s also a third UK retailer I believe you should consider before making a final decision.