Stock Watch

Boohoo share price set to rise on raised revenue guidance

CMC Markets

Boohoo’s share price is likely to rise today on the back of strong third-quarter figures, after revenue grew by 40% in the four months to the end of December.

Sales growth was strong across all regions and brands. The US recorded the most gains, as revenue grew by 52%, while the UK posted a 40% increase. Boohoo also raised its full-year revenue guidance to 36-38%, up from 28-32%.

Gross margins dipped by 50 basis points to 53% in the quarter, but the company still expects full-year adjusted EBTIDA margin to be around 10%. The pandemic prompted a surge in online shopping which greatly benefited Boohoo, but there were additional health costs.

While the high street is suffering, Boohoo is expending, with a new warehouse site to open in April. Boohoo’s investment in the business is part of the reason why the medium-term revenue target of 25% was left on hold.

Boohoo share price back on track after supply chain report

In July, a report claimed that some textile firms in Leicester were in breach of the law with respect to paying below the minimum wage and not adhering to socially distancing policies. In the wake of the announcement, Boohoo’s share price took a hammering, because initially there were concerns the textile companies under scrutiny were third-party suppliers to the London-listed group.

Boohoo took the allegations very seriously and set up an independent investigation. The report concluded there was no deliberate wrong-doing by Boohoo. As a result, Boohoo has overhauled its supply chain. This is not only a good public relations exercise, it also should strip out any partners or suppliers to the business that carry out unethical practices.

One would imagine that senior management was given a rude awakening when the story broke about the practices being carried at certain factories. It should act as a lesson for Boohoo and others in the sector. This morning the group confirmed a lot of progress has been made with respect to raising the standards of its supply chain.       

ASOS posted solid first-quarter numbers yesterday. In the four-month period, group sales increased by 23%. Profit margins were squeezed because coronavirus costs impacted the bottom line, but nonetheless, it said that it still anticipates pre-tax profit to be at the upper end of expectations.

Boohoo share price in bullish uptrend

Boohoo’s share price was hugely volatile in 2020 and it wasn’t all down to the pandemic. The stock tumbled in March as broader sentiment was very bearish. Subsequently, it went on to hit a new record high in June. The textile factory scandal in July rocked Boohoo's share price, but it recovered the bulk of those losses.   

The Boohoo share price has been in an uptrend since late October. If the bullish trend continues it should target 400p or 432p. A pullback might find support at 309p, the 50-day moving average, while a move through that level could see the 288p region being targeted.