Boohoo : Pdf (613.4 KB)

28 September 2022

The information contained within this announcement is deemed by the company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of the domestic law of the United Kingdom by virtue of the European Union (Withdrawal) Act 2018 (as amended) ("UK MAR"). Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

boohoo group plc - interim results for the six months ended 31 August 2022

"Leading the fashion eCommerce market"

	6 months to	6 months to	Change	6 months to	Change
	31 August	31 August	2022 on	31 August	2022 on
	2022	2021	2021	2019	2019(1)
	(1H FY23)	(1H FY22)		(1H FY20)
	£ million	£ million		£ million
Revenue	882.4	975.9	-10%	564.9	+56%
Gross profit	463.5	533.3	-13%	306.6	+51%
Gross margin	52.5%	54.6%	-210bps	54.3%	-180bps
Adjusted EBITDA(2)	35.5	85.1	-58%	60.8	-42%
% of revenue	4.0%	8.7%	-470bps	10.8%	-680bps
Adjusted EBIT(3)	9.6	64.2	-85%	51.3	-81%
% of revenue	1.1%	6.6%	-550bps	9.1%	-800bps
Adjusted profit before tax(4)	6.2	63.8	-90%	51.9	-88%
Adjusted diluted earnings per share(5)	0.30p	3.84p	-92%	2.91p	-90%
Net (debt)/cash(6) at period end	(10.4)	98.4	-108.8m	207.3	-217.7m

Summary of first half financial performance

• Gross revenue before returns up 4%, reflecting underlying growth and ongoing improvements in average order frequency and spend per customer, offset by weaker than anticipated consumer demand
• Net revenue declined 10% in the first half year:

• 1. As previously guided returns rates up significantly year on year, and ahead of pre-pandemic levels o UK revenues declined 4%, softening through the second quarter as inflationary pressures
     increased and consumer demand appears to have been impacted by cost of living pressures.
     o International revenues declined 17%, with the proposition continuing to be impacted by extended delivery times. Markets such as Australia are starting to see improvements from reduced delivery times, with lower rates of year-on-year declines in revenues as the first half progressed
• Gross margin 52.5%, down 210 basis points year-on-year, in line with expectations, as a result of inbound freight inflation. Gross margin performance improved 210 basis points versus the second half of the prior financial year due to tighter inventory management
• Adjusted EBITDA £35.5 million, with margin at 4.0% impacted by freight and logistics inflation, weaker than anticipated consumer demand and high cost inflation from the macro-economic environment, as well as strategic investments across the multi-brand platform
• Free cash outflow was £2.7 million (1H 22: 157.3 million outflow), following capital expenditure of £38.7
  million. Closing net debt of £10.4m (1H 22: net cash of £98.4m, FY 22: net cash of £1.3 million) reflects multi-year investments, including £96 million on unencumbered freehold assets since February 2020
• Significant liquidity headroom for selective investment programme with gross cash of £315 million at period end

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Near term focus on improving operational performance

As outlined previously in its full year results and first quarter update, the near-term focus for the Group is on key projects that will optimise operations and improve future performance:

• Sourcing: sourcing from near-shore markets increased significantly in the first half, up more than 10 percentage points year-on-year. Heading into the second half, the Group has lower levels of forward commitments on inventory, giving greater flexibility into the uncertain peak trading period
• Inventory management: inventory levels are leaner, with approximately 15% fewer units in stock at the end of August, compared to the end of February. Compared to 2H FY22, inventory turn and gross margin improved, with the latter increasing by 210 basis points, with the year on year decline in gross margin driven by inbound cost pressures as previously stated
• Overheads: macro-economic inflationary factors have contributed to overhead increases year on year and investments into recently acquired brands. An increased focus is being placed on overhead costs in an uncertain consumer backdrop to improve profitability

Robust financial position underpins strategic investments

The Group continues to maintain a robust balance sheet, with £315 million of gross cash and low levels of net debt (£10 million) at the end of the first half, giving significant liquidity headroom that supports selective investments into strategic growth initiatives.

• Automation in our Sheffield distribution centre went live in late September, and is expected to drive material cost savings and efficiencies with a five year estimated payback on £125 million of capital expenditure
• US distribution centre on track to go-live in the first half of the 2023/24 financial year, supporting significant improvement in our customer proposition from a reduction in international delivery times
• Further progress made with Debenhams online marketplace, with a new senior leadership team, upgrading of its technology stack; and rapid expansion of marketplace partners, with 80 new partners onboarded in the first half
• New Customs Warehouse went live in July, with duty savings expected in the second half
• Wholesale sales portal launched, giving greater choice and flexibility to partners, and future operational efficiencies

Outlook and FY23 guidance

As a result of the impact that the macro-economic and consumer backdrop has had on the Group's revenues in the first half, our expectation is for a similar rate of revenue declines to persist over the remainder of the financial year if these conditions continue.

Increases in inflation-driven costs as well as the resultant operational deleverage from lower sales than previously anticipated mean that adjusted EBITDA margins are likely to be between 3% and 5%, compared to the previously guided range of 4% and 7%.

It is the Board's view that by focusing near term on optimising its operations, the Group will be well-positioned to improve future profitability and financial performance through self-help via delivery of key projects and cost efficiencies and through easing of macro-economic headwinds facing both consumers and businesses.

Longer-term competitive positioning and opportunity to take market share unchanged

Over the last three years, the Group has made notable progress towards achieving its long-term growth ambitions. It has also made significant investments during this time and will continue to make selective investments to support its platform and brands, in a manner that reflect the current macro-economic environment.

Since 1H20, the group has:

• Grown significantly with total revenue +56%, (UK: +73%, International: +35%), during a period in which clothing sales in key markets remain broadly flat versus 2019

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• Increased in its largest market, the UK, its share of spend online from 5.6% to 8.4%, with price product and proposition resonating strongly with consumers
• Increased its active customer base to 19 million active customers, up from 13 million, through organic growth and an increased brand portfolio
• Extended target addressable market through acquisitions, with up to 500 million potential customers in key global markets
• Built infrastructure capable of supporting in excess of £4 billion of net sales, with automation driving efficiencies and an international distribution centre enhancing our proposition
• Developed numerous growth opportunities through its direct to consumer proposition, Debenhams and strategic partnerships with select partners globally
• Made further progress on its sustainability strategy with Thurmaston Lane manufacturing facility launched in Leicester, UK in the first half and the PrettyLittleThing marketplace, a clothing resale platform, launched in August 2022

John Lyttle, Group CEO, commented:

"Performance in the first half was impacted by a more challenging economic backdrop weighing on consumer demand. Over the last three years the Group has seen significant gains in market share achieved across our brand portfolio, particularly in the UK where our price, product and proposition resonate strongly with customers. We have a clear plan in place to improve future profitability and financial performance through self-help via the delivery of key projects, which will stand us in good stead as macro-economic headwinds ease. We remain confident in the long-term outlook, as we continue to offer customers unrivalled choice, inclusive ranges and great value pricing, giving them even more reasons to shop with us."

Investor and analyst webcast

boohoo group plc will today host a presentation video webcast for analysts and investors at 8.45am (UK time) via the following link: https://webcasting.buchanan.uk.com/broadcast/62f125bd2c785a4107c36427

A replay will subsequently be available the same day via the same link. boohoo group plc's interim results are available at www.boohooplc.com.

Enquiries

boohoo group plc
Neil Catto, Chief Financial Officer	Tel: [phone]
Alistair Davies, Investor Relations	Tel: [phone]
Clara Melia, Investor Relations	Tel: [phone]
Mark Mochalski, Investor Relations	Tel: [phone]
Zeus Capital - Nominated adviser and joint broker
Andrew Jones / James Edis	Tel: [phone]
Benjamin Robertson	Tel: [phone]
Jefferies - Joint broker
Philip Noblet / Max Jones	Tel: [phone]
Buchanan - Financial PR adviser	[e-mail]
Richard Oldworth / Kim Looringh-van Beeck / Toto Berger / Verity Parker	Tel: [phone]

Notes:

1. Change on 2019 (1H20) is more representative of the medium-term business growth as it smooths out the exceptional growth in 1H21 due to the pandemic, when new customer acquisition was exceptional, and the effect of a material increase in international shipping costs.

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1. Adjusted EBITDA is calculated as profit before tax, interest, depreciation, amortisation, share-based payments charges and exceptional items.
2. Adjusted EBIT is calculated as profit before tax, interest, share-based payments charges, amortisation of acquired intangible assets and exceptional items.
3. Adjusted profit before tax is calculated as profit before tax, excluding share-based payments charges, amortisation of acquired intangible assets and exceptional items.
4. Adjusted diluted earnings per share is calculated as diluted earnings per share, adding back amortisation of acquired intangible assets, share-based payments charges and exceptional items.
5. Net cash is cash less bank borrowings.
6. CER designates Constant Exchange Rate translation of foreign currency revenue, which gives a truer indication of the performance in international markets by removing year-to-year exchange rate movements when local currency sales are converted to sterling.

About boohoo group plc

"Leading the fashion eCommerce market"

Founded in Manchester in 2006, boohoo is an inclusive and innovative global brand targeting young, value- orientated customers, pushing boundaries to bring its customers up-to-date and inspirational fashion, 24/7.

In 2017, the group extended its customer offering through the acquisitions of the vibrant fashion brand PrettyLittleThing and free-thinking brand Nasty Gal. In March 2019, the group acquired the MissPap brand, in August 2019 the Karen Millen and Coast brands and in June 2020 the Warehouse and Oasis brands, all complementary to the group's scalable, multi-brand platform. In January 2021, the group acquired the intellectual property assets of Debenhams, with the goal of transforming a leading UK fashion and beauty retailer into a digital department store and marketplace through a new capital-light and low-risk operating model. In February 2021, the group acquired the intellectual property assets of UK brands Dorothy Perkins, Wallis and Burton. As at 31 August 2022, the boohoo group had 19 million active customers across all its brands around the world.

Cautionary Statement

Certain statements included or incorporated by reference within this announcement may constitute "forward-looking statements" in respect of the group's operations, performance, prospects and/or financial condition. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words and words of similar meaning as "anticipates", "aims", "due", "could", "may", "will", "should", "expects", "believes", "intends", "plans", "potential", "targets", "goal" or "estimates". By their nature, forward- looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. No responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast. This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares or other securities of the Company. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Statements in this announcement reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this announcement shall be governed by English law. Nothing in this announcement shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.

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Review of the business

Group overview

Group revenue for the half-year declined by 10% (9% CER) on the first half of the previous year to £882.4 million (2021: £975.9 million, 2019: £564.9 million) and increased by 56% on the first half of three years ago, pre- pandemic. Comparison with three years ago demonstrates the growth of the business excluding the exceptional growth and low returns during pandemic periods. Gross sales before returns increased on the prior half-year by 4%, indicating the continued momentum of the group's brands as they gain market share. However, with returns higher than in the pandemic period, net revenue shows a decline.

Adjusted EBITDA was £35.5 million (2021: £85.1 million, 2019: £60.8 million), a decrease of 58% on the first half

of the previous year, as a result of: softer consumer demand, elevated returns rates, freight and logistics inflation, high cost inflation from the macro-economic environment, as well as strategic investments across the multi-brand platform. Gross margin of 52.5%, declined 210 basis points year-on-year due to elevated inflationary cost pressures. Gross margin did, however, improve compared to the second half of the previous financial year with tighter inventory management, and our flexibility in moving supply chain sources away from the Far East, with its associated elevated freight costs, to Europe, reducing product costs.

Adjusted EBITDA margin reduced to 4.0% (2021: 8.7%, 2019: 10.8%), but was flat when compared to the second half of the previous financial year. International distribution costs have continued to be significantly elevated against pre-pandemic rates, but we are seeing some small, steady rate reductions as the year progresses. Our more recently acquired brands are demonstrating improving profitability but continue to operate with higher overheads as a percentage of revenue compared to the much larger and more established brands we own. Central overheads increased as a percentage of net sales in the first half due to the operational deleverage from a decline in net sales year-on-year, coupled with inflationary cost pressures as a result of the macro-economic backdrop.

Loss before tax was £15.2 million (2021: Profit £24.6 million, 2019: Profit £45.2 million). Adjusted diluted earnings

per share was 0.30p, down 92% on the prior half-year. Basic earnings per share was negative 1.19p, (2021: positive

1.44p, 2019: positive 2.88p).

Operating cash flow was £41.3 million (2021: £21.3 million, 2019: £55.9 million). Net cash flow was £213.3 million

inflow (2021: £127.6 million outflow, 2019: £15.5 million inflow), following capital expenditure of £38.7 million and a £225 million inflow from the group's newly committed £325 million Revolving Credit Facility. Our net cash balance (cash less bank debt) at the period end decreased to £10.4 million net debt (2021: £98.4 million net cash, 2019: £207.3 million net cash), whilst the actual cash balance was £314.6 million.

Technology

Investment has continued in key technology projects, including the delivery of Customs Warehousing, which will improve gross margin on overseas sales, and building of systems for the forthcoming US distribution centre. The Sheffield distribution centre servicing PrettyLittleThing transitioned from a third-party provider to in-house, requiring significant IT development and implementation and was successfully completed in June, with 1,400 colleagues joining the boohoo family. In addition, substantial progress has been made on our automation project ahead of go-live in September. Further improvements have been made to the group's wholesale operations, with the implementation of a new sales portal giving greater choice and flexibility to partners, and greater operational efficiencies.

Distribution centres

The group continues to operate four warehouses: the long-established Burnley site, which serves boohoo, boohooMAN, MissPap and Debenhams; the Sheffield facility for PrettyLittleThing; Wellingborough, which houses Nasty Gal, Coast, Oasis and Warehouse; and Daventry, from which the newer brands Dorothy Perkins, Burton and Wallis operate, as well as Karen Millen.

The project to automate the Sheffield warehouse reached completion and go-live in September, with significant capital expenditure of £11 million incurred in the first half year. Additional costs of working of £2 million have been incurred during the construction period, disrupting the normal efficiency, and these are included in exceptional costs. Total capital expenditure for this project is anticipated to total approximately £125 million, in line with prior guidance, driving significant efficiencies and an anticipated payback of approximately five years.

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