Boohoo’s [LSE: BOO] share price has fallen around 22% year to date, partly because management predictions of slowing sales growth were perceived as overly cautious by some investors. However, the company will be looking to build on strong Q1 numbers when it announces its Q2 results on Thursday 30 September.
Warnings of slowdown in sales growth weigh on Boohoo share price
When Boohoo announced its Q1 results, covering the three months to the end of May 2021, the full-year outlook for sales growth of 25% was kept unchanged, suggesting that at some point over the next few months management expects a slowdown in demand. This caution has manifested itself in further declines in Boohoo’s share price, which has fallen around 22% this calendar year and remains only slightly above its year-to-date low.
Boohoo’s share price peaked in June 2020, before a scandal around a supplier factory in Leicester, which was operating below the required standards set by UK Health and Safety and was also paying below minimum wage levels, causing its price to drop sharply. Despite the short-term brand damage, management appear to have drawn a line under some of these issues, and in March 2021 took the decision to drastically cut back on the number of suppliers in its supply chain to 78, down from over 200, as it looked to shore up its battered reputation and improve oversight. To further reinforce its governance, the company announced it would also be setting up a risk committee to oversee supply chain monitoring and compliance. Concern was raised about these issues again towards the end of July 2021 after a report on Sky News, to which the company responded with a strong statement.
Boohoo looking to build on strong Q1 results
Despite the noise around supply chain issues, the company got off to a strong start when it announced its Q1 numbers in June. Q1 revenue rose 32% to £486.1m, with UK and US markets seeing the strongest gains, while the rest of Europe declined 14%. Commenting on the Q1 results, Boohoo CEO John Lyttle said that he was “delighted” with the company’s performance, adding that “it was always going to be challenging to produce strong growth rates on last year, when lockdowns around the globe drove such high traffic to online retailers”.
Revenue growth in Q1 continued its momentum from the end of last year, when the business posted a 41% boost in revenue and a 35% increase in profit-before-tax to £124.7m. It was at that time, however, that management first warned that they expected sales growth to slow to 25% in 2021 – a prediction that struck some investors as somewhat over-cautious given the impending easing of lockdown restrictions and anticipated consumer spending on summer clothing.
Will impressive revenue growth continue in Q2?
As Boohoo moves on from last year’s negative publicity, and following the company’s announcement in July that it has struck a deal with Alshaya Group in the Middle East, which will see Boohoo brands in Debenhams stores across the region, analysts will be keen to see whether high demand for online fashion continues to translate into strong revenue growth for the company.
How will the Boohoo share price react after the online fashion retailer releases its half-year earnings update at 7am on Thursday 30 September?
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.