Expanding European Reach And AI Adoption Will Drive Success

Key Takeaways

• Geographic expansion and strategic multi-category diversification on Boozt.com and Booztlet suggest potential long-term revenue growth and market resilience.
  
• Efficiency improvements through AI and cost reduction strategies are expected to enhance profitability and support margin expansion.
  
• Geopolitical uncertainties, market uncertainty, and inventory issues may reduce revenue and profit margins despite efforts to clear stock through Booztlet.

Catalysts

Sells fashion, apparel, shoes, accessories, kids, home, sports, and beauty products online.

• Boozt is leveraging Booztlet.com for effective inventory clearance through strong sales and strategic pricing, allowing Boozt.com to maintain its premium brand value. This strategy could lead to improved net margins by optimizing inventory management and preserving brand equity.
  
• Expansion in active customer base across both Boozt.com and Booztlet, with significant growth in regions outside the Nordics like the Baltics and the rest of Europe, suggests potential for future revenue growth through geographic and demographic diversification.
  
• The adoption of AI-driven tools and a 10% reduction in workforce indicate operational efficiency improvements. Boozt expects these efforts to deliver a net improvement of around 0.3 percentage points to their adjusted EBIT margin in 2025, boosting profitability.
  
• Investments in fulfillment efficiencies and strategic cost negotiations have led to reduced fulfillment and administrative costs, contributing to improved adjusted EBIT margins. Continued focus on these areas could enhance earnings and profitability.
  
• Multi-category purchases are increasing on Boozt.com and Booztlet, supporting the strategic goal of their department store model. This diversification could positively impact revenue and address fluctuating demand in specific fashion categories.

Boozt Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boozt's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 4.5% in 3 years time.
• Analysts expect earnings to reach SEK 465.3 million (and earnings per share of SEK 6.4) by about May 2028, up from SEK 344.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK390 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.1x on those 2028 earnings, up from 15.7x today. This future PE is lower than the current PE for the GB Multiline Retail industry at 20.6x.
• Analysts expect the number of shares outstanding to decline by 2.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.48%, as per the Simply Wall St company report.

Boozt Future Earnings Per Share Growth

Risks

• Declining consumer confidence in the Nordics due to geopolitical uncertainties and trade tensions could lead to reduced consumer spending, impacting revenue growth.
  
• Revenue guidance has been lowered due to increased market uncertainty, adverse foreign exchange impacts, and prolonged geopolitical unrest, all of which could limit earnings potential.
  
• The shift from Boozt.com to Booztlet for clearing inventory negatively affects profit margins, as Booztlet operates with higher discounts, potentially reducing overall profitability.
  
• Elevated inventory levels and the risk of overstock may necessitate further discounting, which could erode gross margins and adversely affect net earnings.
  
• The competitive landscape and consumer hesitancy in key markets, like Denmark, may further exacerbate sales challenges, affecting both top-line revenue and net profit margins.

Valuation

• The analysts have a consensus price target of SEK133.333 for Boozt based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK165.0, and the most bearish reporting a price target of just SEK105.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK10.3 billion, earnings will come to SEK465.3 million, and it would be trading on a PE ratio of 20.1x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of SEK84.55, the analyst price target of SEK133.33 is 36.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.