Is the Boohoo share price about to breach previous highs?

Shares in online giant Boohoo Group (LSE: BOO) registered strong gains in early trading as the market embraced the latest set of interim numbers from a company that now regards itself as “leading the fashion e-commerce market“. 

After a year of shuffling within the 150p to 200p range, how long can investors expect to wait until the share price exceeds previous highs? 

Strong performer

Let’s take a look at the figures first. Having achieved “market-leading growth in all markets“, revenue soared 50% to 395.3m over the six months to the end of August, with 41% of this now coming from overseas.  

Now boasting 6.7m customers, the firmly-established Boohoo brand registered a 15% increase in revenue to £209m. As expected, however, it’s the company’s two acquisitions that are really leading the growth charge.

After doubling the numbers of active customers it serves, upstart PrettyLittleThing grew revenue by 132% to £168.6m over the period which saw its distribution centre relocated to Sheffield.

Although still very much the minnow of Boohoo Group, the company’s second acquisition — Nasty Gal — was no slouch either with sales more than doubling to £17.7m following a 313% rise in customer numbers.  

Moving to the bottom line, adjusted pre-tax profit came in at £35.8m — a 43% increase on the £25.1m achieved over the same period in 2017. Gross margins, which had been a cause of concern for some analysts, improved by 200bps to 55.3%. 

Perhaps the most encouraging aspect of today’s report, however, was Boohoo’s decision to upgrade its annual sales guidance. Revenue growth for the full year is now predicted to be within the range of 38% to 43% — an increase from the previous 35% to 40% estimate. 

Return to form

While no one knows for sure where any company’s share price will go in the short term (and some traders will surely want to take profits following today’s positive reaction), I remain optimistic that previous highs of 266p could be eclipsed over the next year or so based on two catalysts.

Firstly, the £2.2bn cap looks set to reap the rewards from huge investment in automating its Burnley distribution centre. Scheduled to be up and running in 2019, this will generate efficiency savings and help the company towards its target of generating £3bn of net sales globally.

The recruitment of a new CEO could also put a bit of fire under the share price. As previously announced, founders, joint-CEOs and major shareholders Mahmud Kamani and Carol Kane will shortly move to new roles within Boohoo, allowing Primark’s Chief Operating Officer, John Lyttle, to take the reins from March next year. Given the simply astonishing £58m remuneration package promised if he is able to grow the company’s value to £5.6bn in five years, it seems reasonable to assume that Mr Lyttle will want to impress shareholders from the beginning of his tenure when he outlines his plans for taking the company forward.

Whether the latter share the company’s optimism or are patient enough to stay invested for another few years is another thing entirely, of course. With a price-to-earnings ratio (P/E) of 50 before today, it’s always worth remembering that Boohoo remains a something of a high-risk growth play that simply must continue impressing the market (which is easier said than done).   

For now, however, I remain a holder.