The outlook for many of the UK’s clothing retailers is tougher than it has been for decades, so investors need to think carefully before taking the plunge in this particular sector.
Many of Britain’s listed retailers have been peppering the market with concerning trading details for well over a year now. That includes Marks & Spencer, which was again putting out scary numbers in Wednesday business.
It advised that demand for its clothing and homewares lines continues to decline, with related like-for-like sales falling 3.4% in January-March, versus 2.8% in the prior quarter. M&S cited a “more challenging market” as one of the reasons behind a sales slump during the second half of the year. Consequently, it’s putting its foot on the gas to embrace the fast-growing e-commerce segment through further waves of restructuring.
Investment paying off
Unlike M&S, Boohoo.com (LSE: BOO) has had no such problems, thanks to its already-robust position in the critical online marketplace. And this was underlined in recent trading numbers.
The AIM-quoted business advised in April that group revenues almost doubled during the 12 months to March to £579.8m, a result that propelled adjusted pre-tax profit 60% higher to £51m. The number of active customers at its core boohoo.com website increased 22% to 6.4m, underlining the massive impact the investment in its online platform has had.
But arguably its PrettyLittleThing division — a unit it acquired back in 2016 — stole the headlines. Customer numbers here leapt 128% in fiscal 2018 to 3m active users.
C0-chief executives Mahmud Kamani and Carol Kane lauded the results, commenting: “Against a backdrop of difficult trading in the UK clothing sector, the group continued to perform well, gaining market share in the expanding online sector.” And Boohoo.com has plenty of financial strength to continue investment in its brands as well as behind the scenes to keep sales rampaging higher. Net cash ballooned to £133m as of March from £54.8m a year earlier.
Kamani and Kane continued that “we believe that the benefits of our investments in marketing and warehouse automation will generate economies of scale to allow us to drive sales growth of at least 25%.” The business is expecting revenue growth of 35%-40% during the 12 months to March 2019.
Global superstar
Reassuringly for nervous investors, Boohoo.com’s tentacles are not restricted to just the UK, with its vast international presence providing some protection from the impact of declining consumer spending power in its core marketplace.
And the business is picking up momentum in these overseas territories. International sales leapt 364% last year and, given its relatively low market penetration abroad, it has plenty of business left to win. It’s planning a series of measures including the introduction of more country-specific websites to drive sales from foreign customers too.
City analysts are expecting the online giant to continue building earnings at a rapid rate and advances of 14% and 26% are forecast for fiscal 2019 and 2020, respectively.
Now Boohoo.com may be expensive, with the firm carrying a forward P/E ratio of 54.8 times. But this is a small price to pay given the rapid progress it’s making all over the world. I expect the business to prove an excellent stock to buy in the years to come.