Boohoo shares: what to expect from the first-half results

• Boohoo is expected to report revenue growth of 35% in the first half (H1) as demand remains strong during the pandemic
• Boohoo published the independent investigation into its supply chain last Friday, which identified many failings but cleared it of any serious wrongdoing
• Pressure is still building after MPs called for senior management, including billionaire founder Mahmud Kamani and chief executive officer (CEO) John Lyttle, to quit
• Boohoo believes it can it can rectify issues in its supply chain without impacting its financial performance, but there are still concerns that the drastic action Boohoo is taking – like establishing its own UK factory – could raise costs and hurt margins
• Boohoo shares have recovered by over 80% since hitting a low on 15 July, but they still trade below the all-time high set on 30 June just before the scandal erupted

When will Boohoo’s H1 results be released?

Boohoo will release interim results on Wednesday 30 September. This will cover the six months to the end of August 2020.

Boohoo H1 results: what to expect

Boohoo surprised the market last Friday by publishing the independent investigation into its Leicester supply chain. The fast-fashion firm was due to release the review alongside its results this week, but decided to publish early to give investors time to digest the 234-page report and ensure it doesn’t overshadow what is expected to be a strong set of H1 results.

Read more: Boohoo’s supply chain review sends shares higher

Boohoo’s deputy chairman Brian Small admitted the review ‘makes for uncomfortable reading’ at times. It found that some suppliers were underpaying staff and offering unsafe working conditions. It revealed Boohoo largely lived in ignorance about the situation and didn’t know where most of its clothes actually came from. It also found that Boohoo had prioritised growth over equally important obligations, and that its corporate governance was below par for a company of its size.

But Boohoo shares still rose on the back of the report being released because the review cleared the company of the most serious allegations, stating Boohoo did not ‘deliberately’ allow suppliers to offer poor conditions to staff or ‘intentionally profit’ from it, adding there was ‘no evidence that Boohoo has committed any criminal offences’.

Still, the publication of the review isn’t the end of the matter. In fact, it is just the start. Although Boohoo has been cleared of any serious wrongdoing, management are still coming under fire. Several MPs have called for billionaire founder Mahmud Kamani and CEO John Lyttle to leave their posts after allowing the supply chain to fall into trouble. The fact Boohoo awarded £150 million worth of bonuses to its board just weeks before the review was launched will not help their defence.

Plus, Boohoo will now have to spend years addressing the problems and investors are rightly concerned about how this could impact Boohoo’s business and financial model. Boohoo said it was implementing the recommendations of the review in full and taking immediate action.

This includes overhauling the supply chain and ensuring people are paid correctly to establishing its own factory and hiring new staff, and Boohoo will have to convince investors that the radical changes it is making won’t impact its performance.

It will certainly change the business model considering Boohoo doesn’t currently make any of its own clothes but intends to establish a factory with 250 staff to underpin its commitment to the Leicester garment industry.

Boohoo has said it is committed to UK manufacturing but establishing its own factories is a big step. One of the reasons Boohoo has a low-cost model is because it is asset-light and outsources work to others. Its primary assets at present are its two major distribution sites that send goods to customers around the world, but establishing its own factories in the UK could require significant investment and impact margins.

For now, Boohoo says its business and financial model will be unaffected by the dramatic changes it will have to make, but some will remain unconvinced that will be the case as time goes on.

Boohoo will take the opportunity to dive deeper and expand on the review when it releases its results, reinforcing its intention to clean up its act and continue to deliver strong growth for investors.

What does the City expect from Boohoo?

Boohoo’s reputation has, so far, avoided taking a hit among its customers this year and sales are expected to have remained strong during the first six months of the financial year. The online-only model has undoubtedly benefited Boohoo and others during the pandemic as customers avoid the high street.

That was demonstrated by the fact revenue soared 45% in the first quarter (Q1), growing at double-digit rates across all of its geographies and established brands. However, that year-on-year (YoY) growth is expected to have slowed to 27% in Q2.

Boohoo H1 results: consensus

Estimates compiled by Reuters suggest Boohoo will deliver H1 revenue of £762.8 million – up 35% from the £564.9 million delivered the year before.

^{Source: Reuters}

Boohoo’s current guidance for the full year is to deliver annual sales growth of 25% with an adjusted earnings before interest, tax, depreciation and amortisation (ebitda) margin of between 9.5% to 10%. That growth would be considerably lower than the 44% growth reported in the last financial year, while the margin would dip from 10.2%, but neither result should be sniffed at in the current climate.

Boohoo has already had to change its guidance this year as the pandemic unravelled, so watch out for any changes. It should remain largely positive based on how it has performed so far this year. The threat of further lockdowns should be of minimal threat to Boohoo considering demand was buoyed by the last one.

However, one issue could be the growing youth unemployment rate that could severely hit the purses of its young clientele. The Office for National Statics (ONS) has said the young have taken the brunt of job losses during the pandemic, and they are expected to be among the worst-hit when the current furlough scheme ends next month.

How to trade Boohoo shares and H1 results

Boohoo shares had climbed to an all-time high shortly before the initial allegations, driven by the company’s lean and agile business model that has continued to perform well during the coronavirus crisis. But Boohoo lost nearly half of its value within the two weeks to 15 July after the first claims of foul play were levelled against the business.

Boohoo shares have now recovered by 81% from those lows, with the publication of the report providing strong support to the share price. Still, shares are trading over 7% lower than the all-time high set in late June. Boohoo was the most valuable stock listed on AIM before the trouble erupted, but that knocked it off its perch only to be replaced with its largest rival ASOS. Boohoo’s recovery means it is now the second most valuable stock behind its competitor.

Results are always a trigger moment for shares and Boohoo’s will be no different. You can speculate as to whether you think Boohoo shares will rise and buy (go long) or, if you think they will fall, sell (go short) using CFDs.

1. Create an IG trading account or open My IG to your existing account
2. Enter ‘Boohoo’ or its ticker, ‘BOO.L’ in the search bar and select it
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade

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Learn of all the ways to trade with IG

Boohoo shares: broker recommendations

Brokers are bullish on Boohoo, with 22 of them giving the company an average Buy rating as of 28 September and an average target price of 413.68p, which is 8.8% higher than the current share price.

^{Source: Reuters}

That view is supported by IG’s client sentiment, which shows 91% of all IG clients with open positions on Boohoo are long and expecting the share price to rise, with just 9% short and anticipating it will fall.

Boohoo is entering a new era, but at what cost?

The release of the review into its supply chain has removed a large cloud of doubt that would have overshadowed the results, but Boohoo’s problems have not gone away. The review should encourage Boohoo to enter a new era, one where it leads by example in the UK garment industry, and we can expect Boohoo to reiterate its commitment in the results.

It is already taking drastic action, underpinned by establishing a new factory so it can begin making some of its own clothes, but investors will want to know the cost of such endeavours and how it will impact the bottom-line. Although Boohoo has said it is confident this won’t impact its results, the threat of higher costs and therefore prices for its customers remains on the table and it will be Boohoo’s job to prove otherwise.

Still, the results should be warmly received considering there shouldn’t be any unwelcome surprises. Boohoo has so far avoided any severe reputational damage among those who matter the most – its customers – and sales continue to grow at a strong double-digit rate. Attention will be paid to the outlook and whether Boohoo has any concerns over the second half, when the economy faces further threats from further lockdowns and rising unemployment – especially amongst the young.

Boohoo shares lost nearly have their value during the crisis but have recovered well since then. The company has cleared a huge hurdle by publishing the review and brokers are bullish on the stock, believing the share price could surpass the all-time high set in late June, and the results could propel it closer to that target price.