Rising Environmental And Ad Costs Will Erode Nordic Margins

Key Takeaways

• Rising environmental and regulatory pressures, along with higher logistics and digital marketing costs, are expected to constrain Boozt's margins and limit earnings growth.
  
• Heavy reliance on the Nordic market and exposure to the direct-to-consumer shift among brands threaten Boozt's future revenue growth and market position.
  
• Expanding into multiple categories, improving operational efficiency, and leveraging technology help stabilize revenue, control costs, and enhance long-term profitability despite inventory and market pressures.

Catalysts

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

• Intensifying environmental pressures and the likelihood of stricter sustainability regulations threaten to make Boozt's online fashion offering less attractive to increasingly eco-conscious consumers. This is expected to elevate compliance costs and dampen long-term demand, negatively impacting both revenue growth and operating margins.
  
• Accelerating digital advertising costs and tightening privacy laws are set to erode Boozt's customer acquisition efficiency. This trend will drive up marketing spend and result in a structurally higher cost-to-acquire, limiting any improvement in operating margins and ultimately reducing net earnings growth over the coming years.
  
• Boozt continues to rely heavily on the Nordic region for the majority of its revenue, raising the risk of market saturation and constrained top-line expansion. As demographic shifts like the aging population begin to reduce the addressable fashion e-commerce market in the region, revenue growth potential faces a multi-year structural cap.
  
• The persistent margin pressure from elevated logistics and reverse logistics costs, coupled with high return rates in apparel, will increasingly erode profitability. Despite short-term efficiency gains, Boozt's net margins are expected to be structurally squeezed as these industry-wide pressures mount.
  
• The long-term shift by brands towards direct-to-consumer sales models threatens Boozt's role as a third-party multi-brand platform. As leading brands further prioritize selling through their own channels, Boozt is exposed to product assortment dilution and potential market share loss, directly weakening future revenue streams and gross profit.

Boozt Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Boozt compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Boozt's revenue will grow by 5.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 4.2% today to 3.7% in 3 years time.
• The bearish analysts expect earnings to reach SEK 351.8 million (and earnings per share of SEK 5.18) by about August 2028, up from SEK 344.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.3x on those 2028 earnings, up from 17.2x today. This future PE is lower than the current PE for the GB Multiline Retail industry at 20.7x.
• Analysts expect the number of shares outstanding to decline by 2.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.62%, as per the Simply Wall St company report.

Boozt Future Earnings Per Share Growth

Risks

• Boozt continues to grow its active customer base, reaching 3.8 million active customers and expanding its multi-category strategy, which could support long-term revenue growth even in weak market environments.
  
• The company has demonstrated operational improvements and cost discipline, with fulfillment and administrative cost ratios declining and adjusted EBIT margin rising to 2.3% from 1.2%, which could support stronger operating margins and future earnings.
  
• Boozt's diversification beyond fashion into categories such as Kids, Beauty, Sports, and Home is showing resilience, with these non-fashion segments performing well, which reduces reliance on the more volatile fashion segment and could stabilize revenue and gross margins.
  
• The company is leveraging technology and AI-driven efficiency improvements, including a 10% workforce reduction and fulfillment center automation, which positions it to further reduce operating costs and enhance profitability over the long term.
  
• Despite short-term inventory challenges and discounting, Boozt's ability to clear inventory efficiently through Booztlet, coupled with a sustained focus on customer satisfaction and loyalty, could protect brand equity and drive higher customer lifetime value, ultimately supporting sustained earnings and cash flow.

Valuation

• The assumed bearish price target for Boozt is SEK85.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Boozt's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK110.0, and the most bearish reporting a price target of just SEK85.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK9.6 billion, earnings will come to SEK351.8 million, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of SEK92.95, the bearish analyst price target of SEK85.0 is 9.4% lower.
  
• 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.