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Is Boohoo’s [BOO] share price set to surge following record Christmas sales?

Boohoo Group [BOO] delivered impressive numbers for the last four months of 2018. A trading update released last week indicated that revenue rose 44% to £328.2m across its global businesses off the back of strong sales, with revenue from its UK businesses alone boasting £180m.

The ecommerce company, which was founded in 2006, sells women’s fashion and accessories via three brands: boohoo, PrettyLittleThing and Nasty Gal. All three brands reported revenue up from the previous quarter. PrettyLittleThing’s revenue nearly doubled, rising by 95% to £144.2m, while NastyGal’s grew 74% to £20.6m. Revenue for the flagship brand grew 15% to £163.5m.

 

Market cap£2.16bn
PE ratio64.19
EPS (TTM)2.90

Boohoo stock vitals, Yahoo finance, as at 28 January 2019

 

For the moment, the online clothing retailer looks to have defied retail’s Christmas gloom. While main competitor ASOS [ASC] is expected to report its Q4 earnings on 15 February 2019, it did issue a profit warning in December last year warning investors that its trading “significantly” deteriorated during the month prior.

JD Sports [JD], meanwhile, reported a 5% like-for-like sales increase in the 48-weeks ending 5 January 2019.   

Emily Salter, retail analyst at data and analytics company GlobalData, had said last year that 2019 would be another successful year for Boohoo, but warned UK growth could slow because of “the relative maturity of the brands”.

 

What's next?

Despite Boohoo’s strong earnings report, its stock dropped 10% after the announcement on 14 January. The company seemingly still needs to convince investors of its value and that it hasn’t over committed itself in the States. And while PrettyLittleThing saw sales double year-on-year, Boohoo’s revenue growth missed analysts’ expectations by 3%.Powered by CMC Markets, as at 28 January 2019

 

The online retailer’s strong performance meanwhile led the company to revise its revenue growth forecast for financial year 2019 to 43%-45%, up from a previous estimate of 38%-43%. After the initial drop, its stock price is now up almost 4% in the last seven days of trading.

“With earnings momentum remaining positive, we think the shares deserve to re-rate back to prior levels,” Ben Hunt, analyst at Investec, said.

“With earnings momentum remaining positive, we think the shares deserve to re-rate back to prior levels” - Ben Hunt, Investec analyst

Citi analysts have calculated that Boohoo’s updated guidance would ensure annual earnings before interest, tax, depreciation and amortisation of £80m, which comfortably meets consensus expectations.

“We remain firmly focused on continuing to provide our customers with great fashion at unbeatable value. The global growth opportunity is significant and we will be addressing it in a controlled way - investing in our proposition, operations and infrastructure to capitalise on the opportunity,” Mahmud Kamani and Carol Kane, joint chief executive officers said in a statement.

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