Shift To Multi-Category Retail Will Improve Future Stability

Key Takeaways

• Strategic shift to a multi-category model aims to drive revenue growth, reduce fashion reliance, and enhance stability through cross-category sales.
  
• Investments in technology and share buyback program focus on operational efficiencies and enhancing shareholder value, potentially boosting earnings and EPS.
  
• Low consumer confidence and reliance on discounting strategies could pressure margins and challenge Boozt's ability to achieve growth and improve earnings.

Catalysts

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

• Boozt's strategic shift to a multi-category department store model is expected to drive higher revenue growth by expanding customer base and increase cross-category sales. This diversification should reduce reliance on fashion, a volatile segment, and enhance stability.
  
• The improvement in EBIT margins, partly due to exemption from Norwegian customs, sets a new benchmark for profitability. Boozt is targeting a long-term margin goal of 10%, supported by cost efficiencies driven by AI and machine learning, potentially boosting earnings.
  
• Boozt's ongoing investment in technology, including AI, is aimed at improving operational efficiencies in areas like inventory management, logistics, and customer service. These efficiencies are expected to reduce costs and contribute towards margin improvement.
  
• The ongoing and planned share buyback program of SEK 800 million suggests a focus on enhancing shareholder value, which could positively impact the earnings per share (EPS) metric.
  
• Boozt's commitment to increased marketing spend in 2025 to boost awareness of new categories is a forward-looking strategy to drive revenue growth. This investment aims to solidify Boozt's brand positioning and increase market share in segments like Kids, Sports, Beauty, and Home.

Boozt Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boozt's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 4.8% in 3 years time.
• Analysts expect earnings to reach SEK 481.5 million (and earnings per share of SEK 7.17) by about February 2028, up from SEK 342.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK573 million in earnings, and the most bearish expecting 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 22.7x on those 2028 earnings, down from 24.9x today. This future PE is lower than the current PE for the GB Multiline Retail industry at 27.7x.
• Analysts expect the number of shares outstanding to decline by 1.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.86%, as per the Simply Wall St company report.

Boozt Future Earnings Per Share Growth

Risks

• Boozt's top-line growth of 6.3% is at the low end of their guidance, and future revenue growth may be constrained if consumer confidence remains low, particularly affecting Boozt.com's performance with declining revenues. This could impact future revenues.
  
• The reliance on Booztlet for clearing excess stock by offering discounts could pressure profit margins and undermine revenues if this strategy is heavily relied upon due to continued low consumer sentiment affecting demand for full-priced items.
  
• Despite technological advancements and operational efficiencies anticipated to improve margins, there are substantial risks from market volatility and muted consumer sentiment, which could prevent Boozt from achieving its long-term margin targets, impacting future earnings.
  
• The need for an extraordinary investment in marketing to boost category awareness to drive revenue poses a risk in ensuring a positive return on investment, especially if consumer sentiment does not improve as needed to support higher sales figures.
  
• A significant workforce reduction of 10% may lead to strains in operations or service delivery if efficiencies through AI are not fully realized, potentially affecting customer satisfaction and revenue growth if service levels decline.

Valuation

• The analysts have a consensus price target of SEK148.333 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 SEK130.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK10.0 billion, earnings will come to SEK481.5 million, and it would be trading on a PE ratio of 22.7x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of SEK131.4, the analyst price target of SEK148.33 is 11.4% 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.