Boohoo shares collapse 40pc after shock profit warning
Shares in boohoo.com crashed by more than 40pc after the online fashion retailer warned that an advertising spree in autumn and winter has failed to boost sales as much as hoped.
In a major profit warning, boohoo.com said that sales growth in the UK had slowed to 25pc in the four months to December 31 and full-year results would be below market expectations.
The warning is the latest example of fashion retailers suffering a challenging festive period as shops cut prices to try to shift unsold stock.
The company, which floated on London’s Aim market last March, enjoyed sales growth of 47pc in the UK in the six months to August 31 and analysts had expected the company to post a 62pc increase in annual pre-tax profits to £17.3m.
However, boohoo.com said shoppers had been attracted to high street rivals by heavy discounting and that its sales had also been hit by concerns that online orders would not arrive before Christmas after reports of problems at delivery firms.
These factors helped to ensure that a 25pc increase in advertising spend by boohoo.com failed to deliver as many sales as it expected.
This was despite boohoo.com enjoying a record week during the week of Black Friday – a new tradition imported from the US in which stores slash prices on the last Friday of the November, the day after Thanksgiving.
Neil Catto, the chief financial officer, said of the performance: “It was not the level of growth we wanted to see.
“A lot of pent-up demand for Black Friday was pulled through [from potential sales later in the year]. There was then stories about online retailers not delivering goods in time, which negatively impacted online.”
Mr Catto said boohoo.com would now focus on rebuilding relations with frustrated investors and City analysts.
He said: “We have got to concentrate on building that trust up.”
Mahmud Kamani and Carol Kane, the joint chief executives, insisted they still had faith in the company’s business model.
They said: “We are very confident that our fashion credentials, pure play online model and the significant investment in infrastructure will continue to drive growth in the UK and internationally.”
However, shares in boohoo.com slumped 15½p, or 40.5pc, to 22¾p.
Matthew McEachran, analyst at N+1 Singer, said he expected to cut boohoo.com’s forecasted profits by 25pc to 30pc.
He said: “Boohoo has delivered 25pc sales growth so far in H2. Whilst good by most standards this is well below the level implicit in market forecasts and, after substantial investment in capacity/capability, scale economies won’t materialise as planned.
“On revised guidance we expect forecasts to reduce by 25pc to 30pc for the full-year which is very disappointing.”
Alistair Davies, analyst at Investec, said he had been expecting sales growth of 44pc.
He added: “Is the story still valid? In our view, yes. Growth has been below expectations but the strength of the ‘test and repeat’ model means that boohoo.com has exited with a clean stock position due to the supply chain’s flexibility.
“Longer term, in our view the business can continue to deliver growth in its core market and develop its international presence further.”