In a trading update ahead of its full-year results in May, Boohoo said group revenue was down 11% for the year ended 28 February.
UK sales were also down 11% year-on-year versus a strong prior year comparative. International sales declined 10%, with extended delivery times compared to pre-pandemic levels affecting the retailer’s proposition.
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Gross margin is expected at 49.7% and broadly in line with expectations and is expected to improve year-on-year in Q4 with a reduction in markdown activity anticipated.
Boohoo said overheads are continuing to be managed “tightly” against a challenging economic backdrop, including a reduction in capacity in its UK distribution network, with action across the group focusing on reducing costs.
With this in mind, Boohoo is expecting sales to be down around 12% over the financial year, with an adjusted EBITDA margin of approximately 3.5%. Adjusted EBITDA is expected to be in line with market expectations.
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Boohoo is hoping an easing of distribution and some relief to freight rates in 2023, combined with action on costs across the business, will help cost growth moderate as the year progresses, along with an improved cost inflation outlook exiting the year ahead.
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By GlobalData“Performance in the period is in line with expectations and reflects the normalisation of the channel shift online over the last twelve months, but demonstrates the significant market share gains the group has made over the last three years,” said CEO John Lyttle. “Looking ahead, whilst the demand outlook is uncertain due to macro-economic factors, cost inflation is expected to begin to moderate in the second half of the year.
“We have reduced inventory by 27% year on year and with this focus on careful inventory management, strong cost control and cash management, we will continue to drive operational and cost efficiency across the business. The Group has continued to invest in key strategic priorities that will enable future growth, and the progress made gives us confidence that as macro-economic headwinds ease it will be well-positioned to rebound strongly.”
Boohoo intends to publish its full-year results for the 12 months ended 28 February 2023 in May 2023.
An underwhelming performance
Emily Salter, senior apparel Analyst at GlobalData, believes Boohoo, the former darling of UK retail, was challenged by channel switching at home and sluggish sales across Europe last year.
“Many UK shoppers were forced to purchase instore or from multichannel players able to offer click & collect as postal strikes impacted delivery times, so the group was unable to fully capitalise on the demand for partywear among its young shoppers wanting to celebrate a Covid-free festive period. The introduction of returns fees for some of its brands, including boohoo.com and Nasty Gal, may also have deterred some shoppers as they start to make more considered purchases.
“Channel switching is not the only reason for the group’s woes though, as its UK and European shoppers are in particular feeling the effects of the cost of living crisis. Revenue in both regions fell by 11% in constant currency as many consumers are falling out of love with fast fashion and looking for greater value for money – and with its brands’ reputation for poor quality clothing, they do not fit this desire. Also, as the group’s young shoppers usually purchase the highest volumes of clothing, they now have more room to cut back than other demographics. Competitor ASOS felt the impacts of this over Christmas too, with its UK sales falling by 8.4%, however Europe and US sales held up more strongly, and its vast range of brands and wider customer base offers it more protection than boohoo.
“The Boohoo Group’s underdeveloped international distribution network dampened its sales in the US, which fell for the second year in a row, by 17% in constant currencies, as its lack of distribution centre in the region has left it unable to compete with other fast fashion players in terms of delivery efficiency. Although the Boohoo group’s US distribution centre is expected to gradually launch over 2023 and early 2024, many shoppers there will already have switched away from its brands, especially to key rival Shein, so the group will have to work hard to tempt them back, utilising its expertise in launching specific marketing campaigns and influencer collaborations.”
Joshua Holmes, senior consultant, Retail Economics said: “Boohoo’s results are clearly underwhelming and stand in stark contrast to those competitors with a physical store presence.
“As people return to the high street, they are rediscovering the benefits of in-store shopping and the opportunity to try before they buy. Cost of living concerns are accelerating this shift back to physical stores, as consumers hunt for the best deals and take advantage of convenient return options. Omnichannel is the order of the day, as shoppers look for a seamless blend of online and in-store experiences.”
“2023 will also be tricky to navigate for online pure-plays like Boohoo, as high inflation maintains the squeeze on margins, particularly over the first half of the year. Their younger customer base is often on lower incomes, which in the current environment means cutting back on non-essentials and going out less.”
