Expanding Product Range Will Strengthen Future Prospects

Key Takeaways

• Strategic diversification into low-return-rate categories and tech investments are driving revenue growth, margin improvement, and operational efficiency.
  
• Effective inventory management and shareholder-focused strategies aim to boost profitability, earnings stability, and support stock valuation.
  
• Challenging market conditions and low consumer confidence in key Nordic markets may hinder Boozt's revenue growth and pressure profitability despite strategic marketing investments.

Catalysts

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

• Boozt's strategy to diversify its product categories beyond fashion is expected to drive revenue growth. By increasing the share of sales from categories like Home, Beauty, Sports, and Kids, which have lower return rates and higher customer loyalty, Boozt aims to hedge against market volatility and improve its gross margins.
  
• The use of Booztlet to clear excess inventory allows Boozt to maintain fresh stock levels on Boozt.com, supporting higher profitability and reducing the risk of write-downs. This strategic risk management is expected to positively impact future earnings stability.
  
• Investment in technology, particularly AI and machine learning, is enhancing operational efficiency. Improvements in inventory planning, logistics, and customer service, coupled with reduced marketing costs, are expected to contribute to a long-term margin goal of 10%, thereby potentially increasing net margins over time.
  
• The shift in focus towards growing awareness and customer engagement in newer categories is expected to enhance Boozt's brand strength and drive cross-category sales, which could lead to an increase in average order value and, consequently, overall revenue growth.
  
• Boozt's ongoing share buyback program indicates a commitment to returning capital to shareholders, which can enhance earnings per share (EPS) and might offer support to the stock valuation in the long term.

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 April 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 23.0x on those 2028 earnings, up from 16.5x today. This future PE is greater than the current PE for the GB Multiline Retail industry at 19.3x.
• 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 6.45%, as per the Simply Wall St company report.

Boozt Future Earnings Per Share Growth

Risks

• Boozt's recent revenue growth was at the lower end of its guidance, reflecting challenging market conditions, suggesting a difficult environment that could continue to impact future revenue growth.
  
• The decline in Boozt.com sales by 2% in Q4 2024, due to low consumer confidence and strong prior-year performance, indicates potential risks in maintaining revenue growth through core fashion categories.
  
• The company's reliance on Booztlet to clear excess stock at the expense of lower margins shows the risk of profitability being pressured if consumer demand remains soft, impacting net margins.
  
• Although Boozt plans to invest in marketing for category awareness, the success of this strategy is uncertain. If it fails to drive significant consumer interest across new categories, it could adversely affect both revenue growth and marketing spend efficiency.
  
• Current consumer sentiment remains low and trading conditions challenging, particularly in crucial Nordic markets like Denmark, potentially limiting Boozt's revenue growth opportunities and creating earnings volatility.

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 23.0x, assuming you use a discount rate of 6.5%.
• Given the current share price of SEK87.2, the analyst price target of SEK148.33 is 41.2% 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.