Is the Boohoo share price on trend?

Clothing retailers have been in the news lately for all the wrong reasons: stores have been closing, profit warnings have been sounded and company voluntary agreements entered into. 

Boohoo Group (LSE: BOO) designs, sources, markets, and sells clothing shoes, accessories and beauty products under the boohoo and boohooMAN, PrettyLittleThing, NastyGal, and MissPap brands. However, Boohoo is actually doing well. In August, it bought the Karen Millen and Coast brands.

Influencers and followers

The targets for Boohoo’s mainly online marketing are 16 to 30-year-olds living in the UK and abroad, who want the latest designs and styles and want them quickly, and fairly cheaply. Boohoo can turn out small batches of a particular design in about two weeks, so it can be extremely responsive to customer wants, including having a strict, ethical materials policy.

To promote its wares Boohoo has turned to social-media “influencers” en-masse to showcase particular designs to their followers in addition to the exposure gained by having more than 29 million followers across all the major platforms.

Offering larger sizes up to UK size 20 prevents the needless exclusion of those that require them, and all sizes and styles are dispatched from a huge, automated distribution centre in the UK. Stock is kept there, where it can be stacked tight, and high.

Having a range of “social influencers” of different shapes and sizes wearing your clothes in pictures and videos lets customers get a feel for how they will look in them before they order in a digital store. Additionally, a partnership with a recycling app encourages customers to not send their clothes to landfill when they are done with them. 

Sitting pretty

This is all working rather well as the revenue compound annual growth rate (CAGR) measured over the last three years is 63.69%. Compare that with ASOS, another online clothes retailer, who grew its revenues at 28.36% across the same time frame. Boohoo also has ASOS beat on operating margin — 7.33% vs 4.22% — for the last reported full year.

Growth in Boohoo’s net income has been 56.26%. It was sitting on a cash and cash equivalents pile of £197,872,000 at the end of the 2019 financial year, which paid more interest than paid out on debt, and will still be sizeable even after brand acquisitions, distribution investment and building on the expansion efforts into Europe and the USA.

With a market capitalisation of £2,738 million, Boohoo sits at the top of the AIM 100 index, and somewhere down the line should move into the main market. Investors that were previously restricted could then buy, and this could be a real catalyst to the share price. The current executive chairman, co-founder and former CEO, Mr Mahmud Kamani, would need to be replaced by an independent for this to happen. He has been instrumental in the firm’s success, and for now, he is staying where he is.

The latest trading update back inJune showed year on year revenue growth of 39%, and the group topped the UK Hitwise rankings in May this year. This major multi-brand online retailer has a great track record, and the talent and financial strength to keep growing. At 240 pence, the shares are also priced below their historic highs.