Boohoo FY preview: Where next for the Boohoo share price?

When will Boohoo release full year earnings?

Boohoo will release full year results covering the 12 months to the end of February 2022 on the morning of Thursday May 5.

Boohoo FY earnings preview

Boohoo is expected to report its first annual drop in earnings since going public back in 2014 when it reports earnings this week.

Sales are forecast to have grown 13% during the year to £1.98 billion. That is the midpoint of Boohoo’s guidance range, which was dramatically cut in December from its original ambition to grow sales by 20% to 25%. That reflected the fact sales have started to normalise faster than anticipated after exploding during the pandemic, although they remain well-above 2019 levels, and higher levels of returns from customers.

Its core market in the UK has been the driver of sales growth during the year, but its lack of infrastructure outside of the country means growth in the US has been held back and that sales in Europe and elsewhere have fallen – but building out its international operations is a key priority for the business going forward.

Boohoo has already revealed adjusted Ebitda fell to £125 million from the record £173.6 million delivered the year before. Boohoo warned in December that its adjusted Ebitda margin would be just 6% to 7% during the year rather than the 9.0% to 9.5% it had originally pencilled-in and that will be down from over 10% during the past two years. Boohoo’s goal over the medium-term is to get its adjusted Ebitda margin back above the historical 10% that investors have become accustomed to.

Adjusted pretax profit is expected to more than halve to £70.2 million from £149.9 million last year, while reported pretax profit at the bottom-line is set to plunge 83% to £20.4 million. The drop in earnings will be the result of its profitability and margins being squeezed by higher return rates, longer delivery times and the fact the cost of everything from freight to marketing is on the rise. Investment into newer brands is also crimping profits.

The inflationary environment and supply chain problems are hitting all retailers at present, but Boohoo is arguably more exposed to these headwinds than some because it is a private-label retailer. Whereas some clothing retailers have the ability to shop around and stock products from a variety of suppliers in a competitive environment, Boohoo relies on third party manufacturers to produce goods labelled under its own brands, making it more exposed to what is happening within its own supply chain.

Growth and profitability will remain key themes for the outlook. Boohoo’s spending is likely to rise further considering it needs to build out its warehouse space outside of the UK, with plans to build a distribution site in the US already in the works and set to go live in 2023 – although it could surprise markets after stating it was evaluating options to potentially ‘expedite’ the project. Some analysts believe the US site will be followed by a new one in Europe. This could further push up spending and pressure profitability in the short-term but help fuel faster sales growth in the future.

‘The group has gained significant market share during the pandemic. The current headwinds are short term and we expect them to soften when pandemic related disruption begins to ease,’ Boohoo said in its last trading update when it slashed its outlook. ‘Our focus is now on improving the international proposition through continued investment in our global distribution network, capable of delivering in excess of £5 billion of net sales, to support future growth.’

Analysts believe Boohoo will be able to grow annual sales by 10% in the financial year to the end of February 2023 and believe adjusted Ebitda and pretax profits can return to mild single-digit growth.

Where next for the BOO share price?

Boohoo shares were stuck in a downtrend during the year to February but have since traded in a narrow band between a five-and-half-year low of 63.32p and the March 2022-high of 99p.

The bearish RSI, twinned with the fact trading volumes have been on the rise over the last 30 days with the 5-day average now back above the 100-day average, suggests the stock will continue to drift within the current range. The stock needs to break out of this tight band to signal where it is heading next.

If the current floor fails to hold then we could see shares slip below the 60p mark for the first time since mid-2016. On the upside, shares need to break above the 100p threshold, in-line with the 100-day moving average, to breakout above the current ceiling. The next upside target above there is far more significant at 125p. The 24 brokers that cover the stock are bullish overall and have an average target price of 140p, which was last hit in the middle of December 2021.

Notably, the 50-day moving average is closing the gap with the 100-day average and could provide a new bullish signal should it pass back above there over the coming days and weeks.

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