2020 was a transformative year for many UK e-tail shares as Covid-19 lockdowns kicked in. The pandemic encouraged millions of people the world over to shop online for the first time. It caused existing e-commerce users to hit the net like never before as well. And it played into the hands of online-only retailers like Boohoo Group (LSE: BOO).
Global revenues at the business soared 42% at constant exchange rates in the 10 months to December 2020. These came in at a whopping £1.48bn. Revenues in Boohoo’s core UK marketplace soared 38% year-on-year to £787m. But sales growth in its second-largest territory of the US stole the show. Turnover in this exciting market rose 67% thanks to market share grabs and terrific brand momentum.
Investing for growth
Promisingly, the UK fashion share has kept investing heavily to keep winning in the surging e-commerce market. It bought the Oasis, Warehouse, Burton, Wallis and Dorothy Perkins brands to boost its fashion portfolio in the past year. And it bought Debenhams that will drive it into the e-beauty sector. There will likely be exciting opportunities to buy more distressed heavyweight brands as well.
Boohoo is also expanding its warehousing capacity and is set to open a new distribution centre in Northamptonshire. It is making good progress on the building of a new manufacturing facility in Leicester as well. Construction here is also set for completion later in 2021.
Not without risks
There are severe risks to Boohoo’s outlook over the short-to-medium term, however. The emergence of Covid-19 variants, and the effect they may have in prolonging social restrictions, could start to hamper clothing sales across the board.
Office for National Statistics data showed fashion sales slumped 25% in 2020 as social activities stopped and people worked from home. Even UK e-tail shares like Boohoo, which have so far been immune to the wider malaise, could take a hit from a long economic downturn that would strike a blow to consumer confidence. Evidence is emerging that shopper sentiment is waning significantly, as analyst Howard Archer of EY Club notes.
Clear evidence that the #UK #economy is taking more of a hit from #lockdown at the start of 2021 than it did in November, with #consumers seemingly markedly more cautious. #Retail sales volumes fell 8.2% month-on-month n January, essentially double the 4.0% m/m drop in November https://t.co/gVXZpMoVxO
Howard Archer (@HowardArcherUK) February 19, 2021
A high-growth (but expensive) UK share
For the time being though, City analysts expect profits at Boohoo to keep soaring. Forecasts suggest the bottom line will swell 44% in the outgoing financial year (to February 2021). They estimate that earnings will soar 26% in financial 2022 too. I feel that the company has the goods to keep profits powering higher over the long term. And I’d happily buy it for my Stocks and Shares ISA.
Now, Boohoo doesn’t come cheap. This UK share trades on a forward price-to-earnings (P/E) ratio of 42 times, illustrating market expectations of strong and sustained profits growth. But I’m aware this elevated multiple leaves the retailer’s shares in danger of a sharp price fall if its sales momentum begins to run out of puff.