Boohoo (LON:BOOH) beat revenue and earnings expectations for FY15. Guidance for FY16 also appears beatable. Indeed, we see potential for it to grow profits substantially in all of its main territories for the foreseeable future. It has the financial resources to fund that growth internally. These factors underpin the premium P/E rating.
FY15 preliminary results
Impressive FY15 sales growth (+40%) would have been c 2pp higher but for currency headwinds. Investment in the customer offer and in ‘wholesale’ helped to grow sales but reduced the gross margin by 300bp to 57.8%. However, better targeting and leverage from sales growth allowed boohoo.com to recoup this from a 300bp reduction in the marketing to sales ratio. After investing in distribution, the EBITDA margin declined from 10.1% to 9.6%: EBITDA increased 32% to £18.7m.
Substantial potential remains
boohoo.com generated strong sales growth in each territory: UK +38%, rest of Europe +25% and rest of world +56%. Although it sacrificed contribution margin in each territory to achieve the growth, it increased customer numbers by 34% to 4m. The conversion rate of visits to orders improved 40bp to 4%. Average order value slipped 4.8% in response to investments in the offer, which appear justified by the 8% increase in order frequency. The market appears receptive and the company has the financial strength to capitalise: it ended FY15 with net cash of £58.3m.
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