Good morning and welcome, everyone. For those that haven't met me yet, I'm Dan Finley, Group Chief Executive of the Boohoo Group, and what a first 10 days it's been in role. Stephen and I would like to thank you for joining us for our half-year FY25 results presentation. I'm excited to be here today at the start of a new chapter for the group. I'm fully focused on maximizing the value for all shareholders, and I'm up for the challenge ahead. I've been with the group for nearly three years now, joining as CEO of Debenhams. Under my leadership, Debenhams has gone through a period of hypergrowth and digital transformation, becoming transformed into Britain's online department store. It has been successfully repositioned as a capital-light, cash-generative, and highly profitable marketplace model, and we've been able to create a community of circa 10,000 brands with lots more to come.
I'm extremely proud of what we have achieved in such a short period of time and look forward to this next chapter. Before joining Debenhams, I spent a decade as Group Multichannel Director at JD Sports, where I delivered unprecedented digital growth as it established itself at the pinnacle of the sports fashion industry. I transformed it into a multi-billion sales-generating business unit, becoming a global multichannel leader and entering the FTSE 100. Now I'm excited at the opportunities I see ahead for the entire group. We have brilliant brands and great people, underpinned by best-in-class infrastructure. We have had huge success with Debenhams, and I look forward to extending that across the group. We have a significant opportunity to create substantial value for all shareholders through our five core brands. We have commenced a business review and appointed independent advisors to assist with this process.
I will work closely with our independent board to unlock and maximize value for all shareholders. I'm pleased to announce that I have successfully completed an equity placing. This shows the confidence that our shareholders have in the group and the belief in our ability to maximize value through our business review for the benefit of all shareholders. I look forward to keeping shareholders and the market informed of our progress and will report key milestones as we hit them. As a first step in doing this, I'm delighted to confirm the group's commitment to a capital markets day, which will take place in Q1 2025. With that, I will hand over to Stephen to give you an overview of the financials. Stephen, over to you.
Thanks, Dan. Good morning, all. Stephen Morana, Group CFO. I'll spend the next few minutes taking you through results for the six months to the August 31st 2024. For the first time, we've shared some additional information around sales in three distinct groups: the youth brands, Debenhams, and Karen Millen. This is instead of the international mix and better reflects how we run the group today. Overall, GMV is down 6%, a better performance than the last two halves, though obviously impacted by the youth brands. This led to an adjusted EBITDA of £21 million. I'll talk in more detail about the decisions around the US warehouse. Inventory is down £38 million versus February 2024, and the success of the Debenhams marketplace should lead to lower stock levels over time. We saw a significantly lower CapEx spend than previous years as we've completed our major investment programs.
This slide shows the main financial performance as we presented in the RNS. I'll take each line in turn during the course of my presentation. I've included GMV with pre- and post-returns for transparency purposes. GMV pre-returns is broken down by brand. This is the first time we've shown this level of information, and we've included prior years as well. This is the total of all sales recorded through various websites. Overall, we saw a 7.3% decline driven by the youth brands, but the growth in Debenhams is clear to see. Dan will talk in more detail about what he's done to drive this success. What I will highlight is two factors affecting overall revenue growth. First, we took some deliberate actions to cancel a small group of customers who were heavily loss-making for us because of their behavior around returns.
Second, as highlighted before, those eight label brands have been put under Debenhams, and we've deliberately run them to be profitable as opposed to growth. We're now through the cycle of that shift, and we should see growth going forward. GMV feeds into net revenues. I've tried to show here where the 15% group fall comes from. You can see the marketplace effect on net revenues as opposed to GMV. As a reminder, this is a statutory measure, and here we only show the commission generated from a marketplace sale as opposed to the full value of the sale itself when we sell third-party goods. And as we've discussed before, GMV is a better measure of group performance for a business with a marketplace model. Gross margin has dropped to 50.7%, lower than expected. Firstly, returns. This has been widely spoken about.
We've taken decisive action, and this number is now under control. That said, it remains an ongoing challenge, in particular for the youth brands. Stock and promo is mainly discounting, in part to reduce stock levels and in part due to the challenges in the youth space. I've pulled out separately the gross margin cost of the U.S. distribution center. We weren't operating out of it for the corresponding period. We knew that this would be an investment period. However, we have obviously now made the decision to focus our distribution from the U.K., which will drive future savings. This was obviously a really tough decision. The U.S. distribution center was two years in the planning and cost GBP 34 million to make good.
The plan made sense when the decision was first made, which was obviously before Dan and I were involved, but by the time we launched, the need for the space and the benefits it brought had declined. We would have needed several years of operations to start seeing the benefits, and the cost was just too great. In terms of continued cost management, this, alongside the success of Debenhams, has been the real bright spot in the half-year. Total operating costs across the three areas of spend are shown here, compared against the prior two years. You can see clearly the costs taken out, especially across administration and operations. The business has stood up to the challenge of delivering on this, and there is more to go after.
As we can return to growth and improve gross margin, we should see that flowing through to EBITDA as we can now scale much more efficiently. Those cost initiatives have had a significant positive impact of 2.8%, but the gross margin challenge has highlighted areas that have made total EBITDA margin fall to 3.4%. You can also see that we've not cut marketing spend too much. From a net debt perspective, we ended the period at £143 million, up from £95 million at the end of February. You can see the benefit of lower stock offset by working capital timing differences. We see the lower CapEx spend, but some exceptional cash costs. This slide lays out the exceptional costs. The vast majority of these, around £100 million, were non-cash related, and also roughly £100 million related to the closure of the US warehouse.
Overall, obviously a really tough period, but as we look to move more to an asset-light model with the ongoing success of Debenhams, together with the cost control that we've proved we can deliver, that should lead to further free cash flow and improving EBITDA margins over time. Dan.
Thank you, Stephen. I believe that the group remains fundamentally undervalued. We have a significant opportunity to create substantial value for all shareholders through our five core brands. When I look at Debenhams and the significant progress that we have made over the last three years, combined with substantial future growth opportunities ahead, my view is that Debenhams will be a business with a valuation greater than that of the group today, and my job is to deliver on that and more. I will now highlight some of the core brands and what they have to offer. Pretty Little Thing, our largest youth brand, Karen Millen, and Debenhams. First, looking at Pretty Little Thing, PLT is a youth trend leader in online women's fashion. It brings bright and vibrant designs, partnering and collaborating with influencers to drive brand engagement.
PLT offers a range of products from celebrity-inspired looks, everyday wardrobe essentials, to the ultimate party piece, all at affordable pricing. PLT has significant scale, including an impressive social media following with more than 26 million combined followers across all platforms. It is supported by our state-of-the-art automated supply chain network and can serve customers globally quickly and efficiently, supporting the agility of the brand. The Sheffield site, which serves PLT, has had circa £125 million CapEx invested and is delivering significant cost savings, headcount reductions, and increased pick rates of around 10x . Although the external environment has been challenging, the brand continues to have significant scale, which we can leverage. We will look at new routes to market, such as partnering with other brands and expanding the customer offering into a marketplace model, which has proven so successful across other areas of our business.
The group has transformed Karen Millen into a digital-first premium global brand, partnering with iconic brand ambassadors and empowering career-minded women through its forward-thinking style. Karen Millen delivered half-one pre-returns GMV growth amid a challenging macroeconomic environment. It continues to deliver high margins for its luxury fashion offering. The future growth potential is significant through maximizing international licensing and franchising opportunities and the adoption of the marketplace strategy. Our licensing strategy has already proven to be successful. A partnership to design and produce a KM wear range has seen positive results both in the UK and internationally, with a large UK retailer reporting the range as one of its best sellers. We are now exploring other product categories.
As part of these agreements, we work closely with our partners to ensure that products sold align to our brand and customers and receive commission on the sales without taking risk of the stock, a capital-light model. Other third-party arrangements have seen strong growth in territories such as the Middle East, and we look to expand into new territories to drive growth and leverage the Karen Millen brand. The group acquired Debenhams in 2021 for £55 million from administration. I joined as Chief Executive in January 2022. Debenhams is an iconic British heritage brand. It is over 246 years old. Everybody knows Debenhams, and everyone has a story to tell about Debenhams. We have transformed the business into an online digital marketplace underpinned by market-leading technology.
Under my leadership, it has grown significant size and scale, has repositioned as Britain's online department store, and is a customer and partner destination of choice. Let me tell you more about my vision for Debenhams. I want Debenhams to be to retail what Spotify is to music. Spotify is a starting point to enjoying your music. It offers a vast selection, and you know with certainty that whatever you want to listen to, you'll be able to find. It does it in a curated and personalized way that resonates with its customer and enhances the experience. I want Debenhams to be a customer destination of choice. I want it to be a starting point for consumers. I want to offer a great selection of brands across fashion, home, and beauty, and do this in a curated and personalized way.
We are creating a community at Debenhams, a community of brands, partners, and consumers. When I joined, we had just a handful of brands, and today we have now built a community of circa 10,000 brands, with many more to come. So why do partners choose Debenhams? Our marketplace ecosystem is quick and easy to join. We showcase brands at their very best and deliver them growth through our platform. I believe in collaborative commerce. We are operating a proposition that resonates with the customer and our partners. When they both win, we win. We have a great selection of brands across fashion, home, and beauty: Estée Lauder, Kiehl's, Prada, YSL in beauty, Dyson, Smeg, LEGO in home, and Lacoste, Puma, Ted Baker, and Whistles in fashion. These are just some amongst many I could name.
More brands join our ecosystem every day, and many more well-known brands are still to come. An example of how we can supercharge brands on our platform is through our big events, such as our latest Christmas campaign. The 2024 Christmas campaign, Debenhams.com, highlights how Debenhams has positioned itself as Britain's online department store. The campaign, starring Elizabeth Hurley, has had incredible feedback. I'm really proud of what we've created with Debenhams, and I look forward to building on the success to drive the group forward. Debenhams has been repositioned as a leading British online department store, and we are getting results. We've seen GMV growth of 170% across our marketplace and beauty offerings. It is fast-growing and profitable, and a capital-light, highly cash-generative model with significant brand awareness in the UK. I want to touch briefly on the opportunity ahead. We believe the group is fundamentally undervalued.
In Debenhams, I see enormous value. It is a high-growth business. We're aiming to build this brand to a GMV pre-returns business of over £1.5 billion in the UK, with a double-digit EBITDA margin. Our much-loved and well-known youth brands were a £1.8 billion+ GMV pre-returns business in FY24. Through evolving our business model, embracing marketplace, and refocusing on delighting customers, I believe an EBITDA margin of 6% to 8% is achievable in the medium term. Karen Millen is a premium high-margin brand. There is opportunity to continue the expansion of licensing into new agreements, to expand internationally, and through third-party arrangements. I believe through this strategy on Karen Millen, we can deliver growth and double-digit EBITDA margins. So to conclude, it's been a busy first 10 days in my new role.
For the group, this is a new beginning, and I'm super excited about the opportunities ahead of us. We have successfully completed an equity placing. I'm now leading our business review to maximize value for all shareholders. I see significant opportunity for us to extend our marketplace model across a wider group, leveraging our experience that we have developed through Debenhams and enabling us to reduce our stock levels further. We have saved GBP 128 million of operating costs versus H1 FY23, ahead of our original estimates, and reduced stock by GBP 38 million in comparison to February 2024. While cost efficiencies have been found, we can and will do more. I have already identified and actioned GBP 30 million of annualized cost savings. I'll be laser-focused on cost control and look to further reduce our stock levels, becoming a leaner, lighter business.
To keep shareholders and the market informed, I'm delighted to announce the Capital Markets Day will take place in Q1 2025. I'm excited to highlight some of the fantastic things going in our business and the opportunities that lie ahead. My focus, as always, in all that I do, is maximizing shareholder value for all shareholders. With that, I'd like to open up the call to any questions. Thank you.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. Once again, that's star one if you would like to ask a question. Our first question comes from the line of John Stevenson from Peel Hunt. Please go ahead.
Hi, thanks. Morning, guys. Thanks for the additional disclosures, particularly around Debenhams. I wonder if you'd talk a little bit more, really, about the customer profile, maybe the product mix, and to what extent Deb's growth has been restricted, maybe by the availability of funding. And then secondly, just in terms of the traffic and obviously the orders you've got coming through, to what extent is that organic, and to what extent is it driven by performance marketing? And I can ask another one while I'm on, just in terms of sort of the youth brands. I mean, in terms of the relevance of the offer, when you look at sort of cohorts or frequency of spending, I mean, how do you think you're performing now, and where do you think the biggest issues are?
Thank you very much. So I'll touch briefly on Debenhams. Debenhams is a broad church. It has a customer base that ages from 15 to 75+ . Debenhams has always been that accessible department store where people can buy something from GBP 20 to GBP 200, and everybody feels comfortable there. We have a broadly split business across fashion, home, and beauty, and I think that's one of the attractive things about the business model going forward, that it equally serves that fashion, home, and beauty customer. The great thing about Debenhams is that it has such great brand awareness, and our opportunity clearly is to increase consideration to buy from Debenhams. You see that through the investment that we've made in marketing, the Debenhams Christmas campaign being a great example of that. We benefit from a significant amount of brand awareness that brings people back to the site.
Of course, we're investing in those paid media channels too to amplify it, but the significant volumes of customers coming to Debenhams every single week. I think from a youth brand's perspective, it's clear that it has been challenging in a challenging market environment, but we see opportunities ahead. They are much-loved, well-recognized, very well-used websites and brands, and we see significant opportunity under new management to evolve that business model, focus on delighting and re-engaging those customers, and to bring those and to move those brands forward.
Okay, thanks, Dan. I mean, just on the sort of youth brand thing, I mean, do you obviously, without getting too much into sort of current trading, obviously, at least the autumn season sort of started well with the sort of weather in the right place. Do you sort of see that benefit coming through? Do you sort of see the level of attrition softening, or is it still pretty challenging?
Look, I think we see a continuation of what we've seen in the first half. We're focused on the key peak trading period ahead, and we want to make sure that we are positioning ourselves to realize the substantial opportunities that we have with those much-loved brands that are sought by many millions of consumers.
Okay, brilliant. Thank you.
The next question comes from the line of Sarah Roberts from Barclays. Please go ahead.
Hi, thanks very much for taking my question. So three from me. So firstly, it'd be kind of helpful if you can run through your mid-term ambitions for the youth brand. So you reported just over 800 million, excuse me, of GMV in the first half, and you're declining mid-teens. Just what are your expectations for the second half? And then I suppose the mid-term ambition of more than 1.8 million in GMV implies roughly a low single- to mid-single-digit CAGR over the next three to five years. What do you think are going to be the main drivers behind this growth? And then secondly, you've previously commented that you have been investing into pricing as inflation comes down to try and stimulate growth, particularly for the younger brands. And obviously, the competitive environment has been pretty challenging with the entrance of Shein over the past couple of years.
Just curious as to whether you're starting to now see stabilization with this investment into pricing. Thank you.
Thank you. Three questions there. I'll take one and then pass to Stephen. So look, it's day 10 in role, and we've committed to a Capital Markets Day in early Q1 2025. I wanted to share today the opportunities that I see ahead and sort of give a size and scale to that opportunity. We're clearly working through that, and I look forward to sort of sharing more plans in detail as we go to the Capital Markets Day. But those youth brands today are of substantial size and scale, much-loved, millions of consumers, millions of social media followers, and we see significant opportunities ahead there. And I look forward to sharing more about that at our Capital Markets Day.
Hi, Sarah. And I still think these we believe fundamentally these brands are still very relevant, but there's a number of headwinds, not only the competitive environment. You've talked about inflation and other challenges out there, and all of that goes into the mix of some of the challenges that we've had historically. Current trading is relatively similar to what we've seen, but as Dan said, with his new management team, we've got a lot of levers that we're pulling to drive better performance in those brands.
The next question comes from the line of Anubhav Malhotra from Panmure Liberum. Please go ahead.
Hi, team. A couple of questions from me as well. I would just first like to understand, you talked about the marketplace model in PLT, for instance. Could you give us some more color on which direction you want to take that marketplace model in? Maybe are you looking to add more clothing brands which do not directly compete with the core PLT proposition, or are you looking to add other categories, maybe shoes, maybe beauty, and go deeper into those? And the second one on returns, you have identified increasing returns as a reason for the gross margin compression in the half. Do you think this is an industry-wide issue, but specific to you, or are there any particular reasons you have identified why it has impacted you more than others, maybe?
Thank you. In terms of the marketplace, we've overseen a transformation of Debenhams into a capital-light, stock-light, high-growth, highly profitable marketplace business. I see the opportunity to replicate that across some of our other brands and in our youth brands in particular. I think that can be across fashion and beauty in particular, and they can be fashion-led marketplaces going forward. I think the product and brands that we stock and sell can be complementary to the core proposition and the core consumer that we have there. Clearly, on returns, it's an industry-wide fashion challenge, and we continue to work to mitigate those challenges as best we can.
Thank you.
Before we take our next question, as a reminder, please press star one if you would like to ask a question, and our next question, it comes from the line of Matthew McEachran from Singer Capital Markets. Please go ahead.
Thanks very much, and good morning. I was just wondering if you could elaborate a little bit more in terms of where you're at on test and repeat. I think six months ago, there was hope that you would be able to kind of accelerate the amount of newness and speed of the supply chain, particularly with some of the global supply chain disruptions starting to come to an end. Are you seeing any evidence of that yet? And if not, what's the timeline? Thank you.
Hi, Matt. I'll take this one. Look, we're seeing some positives, but I think obviously from the youth numbers, you'll see it remains a challenge for us. We're pulling a number of different levers. We think we were overstocked coming into the start of the year, which has been one of the challenges, and that's why you've seen some decline in gross margin because of markdown. And a big challenge on us is getting stock to a much lower level across the business. And Dan's going to drive that very hard. Obviously, he's seen the huge success of the marketplace model in Debenhams. And from a cash perspective, from a debt perspective, from a working capital perspective, we want to drive that stock level down significantly.
At the start of the year, we were sitting on around GBP 200 million of stock, the vast majority of which would already have been paid. So the faster we can get that stock level down, the greater speed that we can decrease any kind of debt pressures that we have. And the test and repeat model remains fundamental at the heart of the youth fashion businesses. And as I said before, we still feel we've got some really relevant brands there, just in a highly competitive market.
Yeah, understood. Okay, thank you. And just in relation to pricing, I mean, I think you've been through a little bit of a kind of price reinvestment phase. Do you want to just give us a little bit of a flavor as to what the kind of average price movement was in the first half and how you set up for autumn/winter?
Yeah, I think we've got stock into a better place in autumn/winter than we had at the start of the year. You'll see the stock levels come down. So I think we're in a better position. Counter to that is, again, as part of Dan's push to drive stock levels down further. So we look at what needs to be done, and if price is one of those levers, we'll look to use that.
Okay, that's great. Thanks very much.
The next question comes from the line of Mia Strauss from BNP Paribas Exane. Please go ahead.
Hi, good morning. Thanks for taking my questions. So we talk about Debenhams, and it seems that the business is pivoting more towards the marketplace model. This is quite a competitive space in the U.K., particularly you have the like of Next, you have House of Fraser. What is Debenhams' competitive edge for both brands and customers? And then secondly, we talk about your inventory model is going to start reducing as we move to marketplace. What is the level of capacity in your U.K. warehouses, and how is the projection for this going forward? Thank you.
Thank you. Debenhams is an iconic British heritage brand that's much loved, has a high degree of customer recognition, high degree of customer choice, high degree of customer trust, and what we're seeing across the brands that we offer across fashion, home, and beauty, the partners that we work with, and that community of customers that we've got, that's really resonating, and it's resonating that consumers choose to shop with us at Debenhams in ever-growing numbers, and that's great to see. Of course, it's a competitive market, and we're very focused on positioning ourselves as Britain's online department store. In terms of our warehousing and infrastructure going forward, we've made significant investments into, in particular, the automation of our Sheffield D.C.
We believe that's a best-in-class facility, is generating significant benefits for us, will be further utilized now that we are fulfilling our U.S. orders from the U.K., and we have capacity to grow in the infrastructure going forward.
We have no further questions on the line, so I will now hand over to Scott for webcast questions.
Thanks very much for that, Jess. We've had a number of questions from the webcast this morning. First question is, why is the Boohoo Group revenue still falling in a growth sector? What can be done to reverse the continued contraction of the business?
The board has recognized the need for change. We have new leadership in place. We're undertaking a business review, and we've today completed an oversubscribed placing this morning. I'm pleased with the progress that we've made on Debenhams as it's continued its hyper-growth and digital evolution, positioning itself as Britain's online department store. Karen Millen has transformed into a digital-first premium global brand, and we see lots of opportunity to grow going forwards. As I look to the future, we have brilliant brands, people, and infrastructure supported by a strengthened balance sheet. I've overseen the transformation of Debenhams into a capital-light, stock-light, high-growth, and highly profitable marketplace business. I'm confident that this can be replicated across other brands. We've got our business review underway that I am leading.
I've announced the Capital Markets Day where I'll share our future strategy in more detail, and I'm excited by the opportunities that lie ahead.
Great. Thank you for that. A number of questions about, m aybe you could explain the purpose of the placing and what the funds will be used for?
This is a positive, proactive step for the group. It provides additional strength to the balance sheet, reduces net debt, and offers flexibility to support the business at its next stage of growth.
Okay, thank you, Dan. Kate Cozens from Shore Capital. Could you go through the expected National Insurance impact for the group and how you plan to mitigate the ongoing higher pricing backdrop? Are you able to pass these through?
Thanks, Kate. So NI, we think, has probably cost around a couple of million to us, and the increase in the minimum wage is probably similar when you think of the impact over and above inflation, and we mitigate that as we do all kind of continuing headwinds, as Dan said, aggressive cost control and cost management around the business, and other factors that you take in place when you're managing through this.
Thanks for that, Sim. A few people have asked Dan about your two weeks into role. What's your vision, and what excites you most about the potential of the group?
Yes, it's been an interesting first 10 days. I'm excited by the opportunities that I see ahead, but also realistic about the challenges that we face. I see a real opportunity to extend the marketplace model across the group, having transformed Debenhams into a capital-light, stock-light, high-growth, highly profitable marketplace business. That can make a material difference and improvement to our other brands in the group. Of course, we are underway with our business review to determine how best we maximize value for all shareholders, and we've got a Capital Markets Day coming up. But I'm excited by all the opportunities that lie ahead, and I'm fully focused on making sure we maximize value for all shareholders.
That's great. And from a shareholder, Dan, clearly there's been some great work bringing Karen Millen back from administration. I'm interested to know how you look to grow the brand further as part of the group.
I see significant opportunities ahead for Karen Millen, our premium high-margin brand, be that through partnerships, licensing, international expansion, and the extension into marketplace where I see significant opportunities in fashion, home, and beauty for Karen Millen going forward.
Great. There's a few questions around your capital markets day in H2 and sort of what people would expect to hear from that.
Look, we'll have the Capital Markets Day in Q1 next year. We will provide an update on our future vision for the group, talking through our vision for our brands, and spelling out in more detail our strategy as we start this next chapter in the evolution of the group.
That's great. Thank you. Just a reminder for people, if they want to ask a question, please type it in at the bottom of the screen that's there. Now, can you please explain the group's debt repayment profile over the coming months?
Yeah, I'll take this one. Yeah, so we've got a GBP 222 million debt facility at the moment, and as far as Dan and I are both concerned, that's higher than a group like this needs, and we're going to push very hard to significantly reduce our overall debt level over the next months. We've got a number of non-strategic, non-core assets that have got significant value. We've also got a significant amount of stock, which we believe will drop significantly, and we have cash. The current business has a GBP 97 million term loan and GBP 125 million RCF, and we've got set dates to pay down the term loan, but we'll try and pay that down as quickly as we can, as I said, and really get our debt down under GBP 100 million, which we think is much more suitable for a stock-light, capital-light business as we are.
As we've said before, we're through all of our major CapEx cycles now. CapEx is significantly lower than it has been in the past, and we've got GBP 50 million that will be paid before Christmas, so that the debt will be reduced formally before Christmas.
That's great, Dan. And, Sim, thank you very much for that. We've actually not got any time for any further questions at the moment. So, Dan, what I'm going to do is pass back to you for any closing remarks.
Great. Thank you very much for everybody joining this morning. I look forward to meeting and continuing our discussions in due course. Thank you.