Boohoo H1 preview: Where next for the Boohoo share price?

When will Boohoo release H1 earnings?

Boohoo will release interim results covering the six months to the end of August on the morning of Wednesday September 28.

Boohoo H1 earnings consensus

Analysts forecast Boohoo will report a 2.2% year-on-year drop in revenue in the first half to £954.6 million and that adjusted Ebitda – its headline measure – will plunge over 47% to £44.9 million. Adjusted pretax profit is forecast to collapse over 93% to just £4.1 million.

Boohoo H1 earnings preview

Online fashion retailer Boohoo had a tough start to the financial year after reporting an 8% slump in sales during the first quarter thanks to strong comparatives from the year before, when lockdown prompted more people to shop online. Sales were still running some 75% above pre-pandemic levels in the period. Plus, sales have also suffered because of a rise in return rates. When returns were stripped out, gross orders were up some 9%.

However, it said sales were expected to start growing again in the second quarter. Markets do not believe the improvement in the second quarter will fully offset the weaker period in the first, which is set to see revenue drop over 2% in the first half.

Boohoo is aiming to deliver annual low-single digit sales growth over the full year and is more confident about the second half, when it expects sales growth to accelerate, but its guidance remains at risk as the cost-of-living crisis continues to unfold and shoppers pullback on spending. The British Retail Consortium (BRC) said online retail sales fell over 6% in August, suggesting we are starting to see consumers tighten their purse strings. That makes Boohoo’s outlook vulnerable.

‘Worryingly, August data revealed a significant fall in clothing sales – the category which has been the most robust performer this year which could signal the start of shoppers pulling back from non-essential spending,’ said the BRC’s UK head of retail, Paul Martin.

‘As consumers return from summer holidays to an 80% increase in the energy price cap, double digit inflation and Christmas just three pay cheques away, the brakes could be firmly applied on non-essential spending for most UK households. The storm clouds are closing in as retailers brace themselves for a fall in demand - at a time when their own margins are under pressure from rising costs,’ Martin added.

That leaves a tough task for incoming chief financial officer Shaun McCabe, an existing non-executive director that will be taking on the new role later this year and replacing Neil Catto, who will revert to an executive director. McCabe is joining from his role as CFO of train ticket platform Trainline and was previously international director at Boohoo’s rival ASOS.

His top priority is likely to be rebuilding Boohoo’s margin, which is being hammered from every angle. The drop in sales, inflationary pressure on things like freight and logistic costs and the rise in return rates are all placing pressure on earnings. The adjusted Ebitda margin is expected to contract to just 4.4% in the first half from 8.7% the year before. Boohoo is targeting an adjusted Ebitda margin of 4% to 7% over the full year, which would compare to the 6.3% delivered last year and remain well below the 10%-plus that investors have become accustomed to since the pandemic hit.

On top of the inflationary pressure, Boohoo is also having to spend money to promote and establish its newer brands and warehouses, with the automation project at its factory in Sheffield to go-live in the second half of the current financial year and its new US warehouse set to open in the middle of the next one. Boohoo has battled against longer lead times for goods heading to its international markets, but it has tried to source more goods closer to their end markets in the meantime in the hopes of improving its service until the new US warehouse opens.

For now, markets remain convinced that Boohoo can deliver its guidance with consensus figures pointing toward a 1.8% sales rise and an Ebitda margin of around 5.4% over the full year.

However, there are plenty betting against the company. Disclosed short positions in Boohoo stand at 8.1%. That makes it the third most shorted UK stock at present, trailing behind bankrupt cinema chain operator Cineworld and DIY retailer Kingfisher, which has also fallen out of favour after being an early pandemic winner. That suggests we could see Boohoo shares, which are already languishing at levels not seen since 2016 after collapsing over 84% in the past year, remain under pressure.

Where next for the Boohoo share price?

The Boohoo share price languishes near its lowest level in almost six-and-a-half years, having trended lower throughout 2022.

The stock appears to have settled, at least for now, after finding some support at 39.73p, in-line with the level of resistance-turned-support in early 2016. However, the RSI remains in bearish territory and is supported by a steady rise in average trading volumes over the past 10 days to suggest it has further to fall.

A break below here will bring the 39.00p low hit on the first day of September back into play. The stock is likely to fall back toward 37.50p if it drops to new lows, in-line with the level of resistance that emerged in late 2015, although 35.75p should be treated as a firmer potential fall considering this was a key level for almost three months between November 2015 and January 2016.

The first key upside target in view should the stock reverse its fortunes is 46.0p before the 53.0p floor seen throughout June and July, which is also converging with the 50-day moving average, comes back into play. Gains may become more difficult beyond here considering the downtrend that stretches back to December remains live, also tracking the 100-day moving average at 62.50p.

Notably, the 24 brokers that cover Boohoo believe the stock is significantly undervalued following the selloff this year with an average target price of 87.90p, implying the stock can more than double over the next 12 months – although this has dropped considerably from over 100.00p back in June to show they have become more cautious.

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