It overtakes ASOS in market value terms as the duo fight it out in global online fashion
Thursday 04 Jul 2019 Author: James Crux

Pure-play online fashion retailer Boohoo (BOO:AIM) is now worth more than former AIM market superstar ASOS (ASC:AIM), demonstration the duo’s contrasting fortunes.

Boohoo is profiting from its multi-brand approach, youth appeal and social media marketing, while ASOS has de-rated on concerns over slowing growth, margin pressure and mistakes in the US.

Having briefly topped the market price tag of its rival on 20 December 2018, Boohoo’s market value has now comfortably surpassed that of ASOS as of 19 June and stayed higher in the subsequent trading sessions.

Earnings momentum story Boohoo continues to defy the subdued retail market conditions, disrupting rivals and capturing market share in the UK and internationally.

On 12 June it reported a 39% sales surge to £254.3m for the three months to 31 May, reflecting strong growth across all brands and in the US and Europe, albeit a slight gross margin decline accompanied this strong start to its financial year.

Sales growth from the original Boohoo brand was 27%, although it is now the acquired PrettyLittleThing and Nasty Gal brands that are spearheading growth, up 42% and 153% respectively in the quarter.

Boohoo is expected to deliver group revenue growth of 25% to 30% with an adjusted EBITDA margin of ‘around 10%’ this year.

The risk for investors is that the stock valuation appears up with events. At 210p, Boohoo trades at almost 40 times the 5.3p of earnings Shore Capital forecasts for the year to February 2020. This premium rating suggests any growth wobble going forwards would be severely punished by the market.

Poor sentiment towards ASOS, the fallen global fashion destination for 20-somethings, reflects concerns over slowing growth and management’s ability to rebuild operating margins, not to mention the disruption from a major capital expenditure programme which is nearing its end.

The shares cratered on a major profit warning in December 2018 when ASOS flagged a sales shortfall and a halving of operating margins. That sobering news was followed by another weak update in March when capacity problems in its US business began to emerge.

At the half year results (10 Apr), CEO Nick Beighton said ‘we grew sales by 14% despite a more competitive market’, and added that ASOS was ‘capable of a lot more’. The board left full year sales growth and EBIT margin guidance intact at circa 15% and 2% respectively, metrics which compare unfavourably with the guidance from bitter rival Boohoo.

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