Will the Boohoo share price continue to smash the FTSE 100 and Burberry Group?
Luxury fashion champion Burberry Group(LSE: BRBY) has had a patchy five years, swinging in and out of favour with investors. It is up almost 2% this morning, however, following today's preliminary results for the year to 31 March, as its profits of £471m came in 3% ahead of market expectations.
Upmarket and away
Investors have been wary of Burberry since CEO Marco Gobbetti announced last November that he was taking the brand further upmarket, a ruthless move that involves dumping stores in locations that lack the necessary cachet. Today it reported good initial progress, saying plans are on track amid "positive early signs from our retail and wholesale customers". Apparently, Burberry was not too posh to push even further upmarket.
Revenue dipped 1% to £2.73bn, as expected, but free cash flow was strong, rising 4% to £484m. Net cash now stands at £892m, even after paying £169m of dividends to shareholders and £355m in share buybacks. This allowed it to announce a new £150m buy-back programme today. The full-year dividend per share rose 6% to 41.3p as management continues to pursue its progressive dividend policy.
Pricey but nice
Burberry is on track to deliver cumulative cost savings of £100m, its latest collections have been well received, and with Riccardo Tisci in post as chief creative officer, the future looks promising. Its recovery could still prove bumpy, City analysts are forecasting earnings per share (EPS) will drop 6% in the current financial year, then revive by 7% in the year to 31 March 2020.
The stock's forecast yield is 2.3%, covered 1.8 times. Burberry has stayed ahead of the game for decades but trading at a forward 24 times earnings, this expensive fashion brand may be too pricey for some investors.
At least it is not as expensive as fashion flyer Boohoo.com(LSE: BOO), which trades at a whopping forward valuation of 52.3 times earnings, reflecting its faster growth prospects. This multi-bagger is up 623% in just three years, and 300% in two, but the momentum has slowed lately. Those who bought at the wrong time will be crying their eyes out, with the share price almost halving from 265p to 140p between late September and early April.
However, my Foolish colleague Edward Sheldon reckons there are more gains to come, and investors who took advantage of the winter dip have been well rewarded, as the stock has bounced back to trade at 199p today.
Hoo are you?
Full-year 2018 results suggest Boohoo can maintain this momentum, as revenue soared 97% to £580m, helped by the handsome performance of subsidiary PrettyLittleThing, which posted 228% revenue growth to £181.3m, with customer numbers 128% higher.
Many investors have been shunning the fashion sector, scared away by fears of a retail bloodbath on the high street, but they may be missing a trick. Yes, physical stores are stuttering but online sales are soaring, and that is the sector that Boohoo operates in.
Inevitably, the group's breakneck growth cannot last forever but its EPS are still forecast to rise 14% this financial year and 26% the next, with profits almost doubling between in the two years from 28 February 2018 to 2020, when they will top £1 billion. Again, its high price tag may be merited.
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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo.com and Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.