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Boohoo bucking the retail rout

Daniel Lane

Daniel Lane - Fidelity Personal Investing

Profits and revenues at Boohoo have rocketed in the first half of the year, on the back of solid international growth for the online fashion brand.

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Revenues jumped by 43% to £564.9m, with profit before tax up a hefty 83% to £45.2m.

UK sales shot up 35% during the period but perhaps most interesting for investors is the weight now held by the firm’s international operations.

The retailer said sales abroad now account for 44% of the group’s revenue, after growing by 55% in the first half of 2019.

And it’s this growth that retail-focused investors will be concentrating on today. Rival fashion platform ASOS has had a torrid time setting up and growing distribution particularly in the US, with setbacks causing shares to plummet in December. Boohoo has always been in its larger competitor’s shadow but results like today’s could go some way to establishing its own presence among investors.

If that seems unfair, remember Boohoo’s share price dropped around 14% after ASOS reported its troubles at Christmas, despite no clear issues of its own.

It’s understandable that the market should tie the two companies together - both are UK-based online-only fast fashion propositions and both are trying to expand internationally at the same time. What’s more, both firms have come to typify what consumers and investors see as the future of retail and, as such, serve as barometers for the sector. With a raft of clothiers hitting hard times the feeling seems to be - if the online retailers can’t do it then who can?

After all, the groups’ propositions mean there are no need for flagship stores, expensive outfitting and floor staffing, so the cost base is already miniscule compared to their traditional high street peers.

But I think this type of thinking has the potential to hurt investors. We like to put sectors and companies into neat little boxes but this type of top-down sweeping judgement leaves no room for the firms bucking the trend.

In this instance, those who have dismissed retail altogether, or avoided Boohoo due to its similarities with ASOS will have given up gains of around 40% over the past year - and that’s accounting for the December dip.

While we can never be sure what the share price will do next, experienced investors know their final judgement should be based on the value they see in the business from here, not the number on the share ticker.

In the case of Boohoo that means monitoring the performance of new apps in key markets and new payment methods designed to increase order size and frequency, as well as keeping an eye on the firm’s use of warehouse automation, which has helped fuel rapid expansion thus far.

This distribution management and advertising are the bread and butter for these companies. And, while it has been too easy for retailers to blame cash-strapped consumers for fewer pounds filling the tills, investors relying on prevailing sentiment like this miss the individual opportunities and roadblocks each company has to make the most of.

There is no substitute for bottom-up research but it can be very difficult to keep tabs on companies yourself. The Fidelity Select 50 provides a range of our analysts’ favourite funds, run by teams tasked with staying up to date with all sectors and companies, making the big decisions so you don’t have to.

More on Boohoo

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Five year performance

(%)
As at 24 Sept
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019
Boohoo -37.1 216.4 160.4 -24.8 40.7

Past performance is not a reliable indicator of future returns

Source: FE, as at 24.9.19, in local currency terms with income reinvested 

Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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