By Geoffrey Smith
Investing.com -- Boohoo .com plc (LON:BOOH) has flourished by exploiting the cash-strapped teenager’s eye for a bargain, but now it’s eyeing bargains of its own.
The online-only fast-fashion group gave notice on Wednesday of its intention to make full use of the liquidation sale that it expects in fashion as a result of the pandemic, starting with the acquisition of the intellectual property rights of Oasis and Warehouse, two high-street brands that had gone into administration in April.
Boohoo is paying a mere 5.25 million pounds ($6.6 million) for the online rights to those brands, which had sales of 47 million pounds in their last financial year, suggesting the deal should be highly accretive.
In its statement to the London Stock Exchange on Wednesday, Boohoo noted that two other brands that it bought out of insolvency last year, Karen Millen and Coast, have “continued to trade strongly”, which will ease any concerns about integrating new acquisitions as it scales up.
Boohoo’s move is a classic illustration of the trend that investors have bet on in force since the Covid-19 pandemic erupted. Already-struggling high-street names collapse, and online rivals swoop in to scavenge the best parts of the carcass. If Boohoo were a bank, those who can afford to pay more than 15 pounds for a dress would be calling it a vulture capitalist. There is nothing in today’s deal that will be of any comfort to the 1,800 Oasis and Warehouse staff who haven’t worked since April.
That doesn’t change the fact that vultures are an essential part of the ecosystem. And the description would in any case be unfair to a company that has shown itself to be more than equal to the challenges of a notoriously tough industry. Even in the year of Covid-19, it expects sales to grow 25%, and a net margin of 10% or just below.
Those figures represent a clear slowdown from the explosive growth it showed from a lower base, but are still more than decent in the current circumstances. Moreover, the company appears to have successfully addressed one of its key strategic weaknesses by growing beyond the challenged U.K. market. The U.K. accounted for less than half of total revenue in the three months to May 31, as sales grew 66% in the rest of Europe and 79% in the U.S., thanks largely to the success of Nasty Gal, another successfully integrated acquisition.
The market reacted to Wednesday’s news by pushing the stock up as much as 10% to a new record high of 433.50 pence. By 5:15 AM ET (0915 GMT), it had retraced slightly to be up only 9.2%. The U.K. FTSE 100 was up 0.7%, while the benchmark Stoxx 600 was up 0.6%.