7:59 cut – BOO

boohoo group (BOO) – FY Results 2019

Boohoo group have shown extraordinary growth since flotation 5 years ago and shareholders that timed their entry well have multiplied their investment 10 fold. However their share price performance has been volatile and they remain below (as of yesterday) their Autumn 2017 highs.

While much of the share price volatility can be attributed to over-exuberant investors, in recent years their have been concerns over labour practices, implications of a heavy reliance on social media, scalability of brands and distribution costs. Perhaps above all, many shareholders have been somewhat bemused at the way the founding family retained a significant extra-contractural direct minority shareholding in PrettyLittleThing and that brand’s massive subsequent outperformance versus the 100% group-owned boohoo.com brand.

I will look at reposting some of my previous comments on the above on my blog, but here I will concentrate on today’s results, and in particular the profit / EPS figures that (unlike revenue) were not previously known.

For 2018, Stockopedia show identical “EPS Reported” and “EPS normalised” figures that are within a whisker of the “Diluted earnings per share” of 2.71p shown as a 2018 comparitor in today’s announcement. Stockopedia apparently do not recognise any of the adjustments resulting in the 3.23p adjusted EPS comparitor.

Moving on to 2019, Stockpedia show a consensus forecast of just under 4p normalised EPS vs the 3.22p (diluted) and 4.15p (adjusted) reported today. So the question arises (as it often does): which (if any) of the adjustments should be consider when comparing today’s reported EPS against forecasts and against last year’s performance.

Here are the adjustments (the first column is 2019, the second is 2018)

Adjusted profit after tax for the year60,80342,310+44%
Amortisation of acquired PrettyLittleThing and Nasty Gal intangible assets(4,449)(4,449) 
Share-based payment charges(5,278)(3,269) 
Exceptional items – warehouse relocation(6,667) 
Adjustment for tax3,0501,408 

As you can see, most adjustments are in categories that were apparently not accepted in the normalised calculation for 2018, the exception being warehouse relocation.

Similarly, I would consider warehouse relocation as a cost of growth.

Therefore I consider the normalised EPS to be close to the 3.22p figure rather than the adjusted 4.15p figure. This is a significant difference and I remain concerned about valuation. I currently do not hold shares in boohoo group.

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