Hello, and welcome to the Boohoo Group PLC conference call. Throughout the call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded today. I am pleased to present John Lyttle, CEO. Please go ahead with the meeting.
Thank you. Good afternoon, everybody. I'm joined today here in London by Neil, and on the telephone by Mahmud and Carol. Firstly, I'm delighted to announce that today, the Boohoo Group has agreed to acquire the iconic British brands, Karen Millen and Coast, out of administration for GBP 18.2 million, which will be funded from our existing substantial net cash resources. To be clear, we have acquired the online businesses and associated intellectual property out of administration and are not taking on any of the physical stores or operations. Our plan is to run these brands as pure-play online brands, plugging them into our multi-brand platform, and believe that the strengths of our shorter lead times, global supplier network, and test-and-repeat model can transform these brands online.
These are complementary brands to our existing brand portfolio, which will extend our customer reach into a new demographic, enabling the Boohoo Group to capture a greater market share by broadening our target addressable market. We're not providing detailed, updated guidance at this stage. In terms of the numbers in the release, the most relevant metric is the direct online sales figure for both brands, which was GBP 28 million in their financial year to February 2019. We will provide further information alongside our interim results on the 25th of September. So in summary, this is a fantastic and opportunistic acquisition on attractive terms, in line with our strategy to grow our multi-brand platform and take share in the global fashion e-commerce market. We look forward to updating you on our progress in September. I'll now open up the call for Q&A.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad, and if you wish to withdraw your question, you may do so by pressing zero two to cancel. There will be a brief pause while questions are being registered. Okay, and our first question comes from the line of Adam Cochrane from Citi. Please go ahead. Your line is now open.
Good afternoon. Couple of questions, if I may. In terms of the acquisition, how do the sales look from an international footprint? Is there an opportunity here that this can help with expansion into other regions? Just some view on how it's split geographically. And then secondly, when you're thinking about the brand, the design functions, where the product is manufactured and the quality, et cetera, is that something that you're all set to change and put more in line with your existing model, please?
Hi there, it's Neil here. I'll take the question about the geographical split. But what I'd say about that, it's early days as to how the geographic sales for the brands will pan out as we move to the transition to the online-only business. But what I would say is that both Karen Millen and Coast have got presences overseas, and they do have awareness in other countries as well as in the U.K. And I suppose what we'd say at this point is that we believe that both of these brands have global potential and will definitely be trying to promote them internationally in the future.
And it's obviously as an online-only business, it's very easy to do that. So we think they've got great potential outside of the U.K. They already do exhibit sales outside of there, but hopefully we'll be able to grow those even more so.
Are those-
Go on.
Are those sales often made via other, other aggregators, such as Zalando or, or Amazon or, or others? Or are you going to take all of the sales off those other brands and then just sell on your, your own brand, on your own platform going forward?
Yeah, I mean, that's the reference point is the GBP 28 million are the sales in that period that we quote to February 2019, on the own brand's own website. There are sales under the platforms, but we're using the GBP 28 million as the reference site, and we're planning to sell only on our own brand websites.
Okay, thanks.
So, so maybe if I just address the point around brand design. So each of the brands that we have within the group have their own independent design function and product development function. So will be no different in terms of how we run Karen Millen and Coast. From a sourcing point of view, Karen Millen and Coast have about just under 50% from Europe and about the same coming out of Asia markets, where we're very familiar with those sourcing countries and those sourcing manufacturers in terms of going forward. We see Karen Millen and Coast as premium brands. You know, great quality and great fit is quite important in these brands, so no change to those key factors going forward.
Thank you.
... Thank you. And our next question comes from the line of Andreas Inderst from Macquarie. Please go ahead, your line is now open.
Yeah, thank you, and congratulations to the deal. My first question is, maybe on the two brands, why did they go into administration? Maybe you can provide a bit background, what went wrong? That's my first question. The second one is, how is actually the growth profile looking? Or how has it looked over the last few years for these two brands, maybe related to that, the GBP 28 million, given Coast was only consolidated as of October, can you provide us actually with an annualized sales figure? Thank you. And then maybe my third question, are you prepared to do further acquisitions in the coming quarter, or do you think this is sufficient for this year? Thank you.
Hi there, it's Neil here. I'll take that question again. I mean, I don't really want to comment as to why the brands went into administration. I think we've seen very many retailers struggling in recent times. And it's a tough environment out there for a lot of people. I think online pure plays, such as ourselves, and strictly own- brand companies, aren't having as tough a time at all. We're actually you've seen from our numbers that we've reported that we've been growing very strongly. So I don't really want to comment on why they went into administration, but we feel like that we're really confident that we can maximize the potential of the brands as an online pure play.
In terms of the, I think the reference point to take at the moment is the GBP 28 million. That's the best figure to take. I think, if you look at the brands overall, the sales have been relatively flat over the years and, but not declining rapidly. So, I think that's all we can say at the moment. We'll obviously, as we make the transition in the coming months, be able to guide you as to how the brands are performing and, as we return to growth.
Sorry, my final question was, are you prepared to do further acquisitions in the coming quarters, or are you happy now with your most recent acquisitions and the work you have to do to integrate the brands?
I think I'll answer that one. We've got seven brands within the group now. We're sort of heading towards middle of August, and our peak selling season is ahead of us with sort of Black Friday into Christmas. So really, that's our focus as a group now, is making sure we trade that period as successfully as possible. So we've got a lot of work to do, and we'll get on and do that now.
Okay, fair enough. Thank you.
Thank you. Our next question comes from the line of John Stevenson from Peel Hunt. Please go ahead, your line is now open.
Well, thanks, afternoon, everyone. A couple of questions. Just thinking in terms of the team that you're going to bring across, I mean, can you talk about the scale of maybe sort of buyers and brand personnel that are going to come over as part of the acquisition? Second question really on the scale of the offer. I don't know what the sort of SKU count or sort of feel and size of the offer is at the moment on both Coast and Karen Millen, I guess you're going to bring in a lot sort of faster fashion, a lot more newness, but what will your approach be coming to peak?
I guess linked to that, you know, are you going to sort of set aside a level of marketing cost, you know, not for the first season and relaunch, and will that come out of existing budgets and maybe some idea of the scale of that marketing investment?
So I'll comment on the scale as a personnel coming across. And so we've acquired the online businesses effectively and the IP-
Yeah
... associated with that. And, of course, the people that are associated with the running of those online businesses.
Yeah.
That amounts to around 125 personnel.
Yeah
… that have now become part of the Boohoo Group. And those are across functions which are related to the online businesses of buying, merchandising for those businesses, design, product development, tech, tech development, as far as the online sites are concerned, and also marketing as well. So-
Okay
... that's the scale of the personnel that have come across. So I'll hand over to John about the scale of the offering.
To one of, obviously, the great opportunities of being an online retailer is around the range, width, and SKUs that can be on offer. So yes, we do see that as an opportunity-
Yeah
... going forward in both Karen Millen and in Coast. Again, obviously, not having the store portfolio enables us to be much more nimble in terms of our stock purchases. So back again to the real key kind of plank of our business, the test and repeat model, sort of 150-200 pieces perhaps of getting into. We can get into that quite quickly. We can trade it if we want to. If not, we can move on to the next best style. So that allows us, from a SKU point of view, to carry a wider range and to be much faster in terms of our fashions.
Okay, fine. So I mean, I guess you're expecting, I don't know, six-eight weeks to kind of get control, and then I guess you'll have a pretty good offer coming to peak?
... Yeah, that's our plan, is to have it back up and trading for peak. And that work starts this afternoon once this call finishes.
Okay, fantastic. Brilliant! And then any comments on the marketing and how much you're gonna sort of pump into that initial sort of push?
Listen, we don't have the numbers there that we wanna talk about at the moment. But in terms of marketing, it's obviously a key anchor of Boohoo Group, so our whole kind of concentration on product, on pricing, on marketing, and we'll be-
Yeah.
-applying that, also clearly to Karen Millen and Coast.
And just one final one, actually, because historically, you guys have been very good at using price as a lever, particularly looking at the, say, success of Nasty Gal recently. I mean, is Karen Millen sort of more of a, maybe a full price offer, and therefore it's gonna be more about the marketing side rather than price?
I think, listen, as any retailer, you know, on a hourly, daily basis, you're reviewing product, price, and marketing, and Karen Millen and Coast will be no different. We'll wanna be competitive in the marketplace that it competes in. And we'll be looking at that on a daily basis. But, you know, pricing is key. Product obviously is also key and then marketing around that. So we'll be focusing on all of those.
Okay, brilliant. All right, cheers guys. Thanks.
Cheers. Thank you.
Thanks, John.
Thank you. Our next question comes from the line of Eleonora Dani from Stifel. Please go ahead. Your line is now open.
Hello. Thanks for taking my questions. I have three, if possible. First of all, I was wondering if you could provide a bit of color on who Karen Millen customers are, in terms of demographics, and aspirations. Secondly, you mentioned that the sourcing comes mainly from Europe and Asia. Are you gonna look to change that and maybe source a bit more from the U.K.? And thirdly,
Yes
... you said that the revenues were flat, but not declining, but what about the online channel? Was that growing at double-digit growth, for example? Thank you.
So, let me take the sourcing one. A lot of the product, as I say, is coming out of Europe. Nothing really coming out of the U.K. as manufactured in the U.K. We'll look at that as an opportunity, and see if that's appropriate for the brand. But, you know, we've got an extensive sourcing and supply chain. Karen Millen also have, currently has suppliers in both Europe and in Asia. And we'll look obviously to get the best opportunity from both of those. So again, that work starts from tomorrow. And again, trying to feed back into the model of test-and-repeat, and speed and fashionability.
As far as the online growth concerned, it's the results that we've seen aren't worth commenting on. We've not seen results growing strong double digit like we see with our brands. But there was some variability there. Carol, are you able to comment on the-
Yeah, sure.
What you know about the customer?
Yeah, sure. I mean, I've had quite a good, good time over the last week or so to have a look at their digital strategy. Going back to what John and Neil were saying on marketing, that obviously needs strengthening from, firstly, from a range width perspective, I think, you know, they're quite limited in their current offering. I think one of the first jobs we'll have between now and peak is keeping the offering that they have and then adding to it, and then feeding that offering into our digital strategy of marketing.
Now, we're pretty much gonna not be able to execute in the first quarter everything that we've done in our other brands, but there'll be certainly some parts of the digital strategy and the content strategies that we will now get on with from tomorrow and start building on that to drive traffic. Because their current online business has been relatively small to what we're doing currently. But I think both brands are in really good hands of a team who know digital and e-commerce very well, just to grow on that.
Just, to clarify, who are the customers? What is the demographic and the age group?
Yeah. So Coast is positioned currently, a bit younger than Karen Millen. They're saying maybe 25 upwards, but it's very much a destination, for prom, for evening wear, for, bridesmaid, maybe, wedding, outfits, as well as some... Their recent launch of more fashionability. Karen Millen, slightly older, I would say probably 30+ . Looking at it today, and, a much higher price point again than Coast, where some of their coats are around GBP 300 . We'll look to keep that proposition, but we'll also look at the entry prices around it to expand, the customer offering for a slightly older demographic.
The demographic that they have today, we will look to retain, but we'll also look to add to that demographic as well, and that will come through our product strategy and our level of fashionability and price points.
Okay. That was very helpful. Thank you.
Thank you. Our next question comes from the line of Simon Bowler from Numis. Please go ahead. Your line is now open.
Hi. Afternoon, all. A few questions from myself. Firstly, in terms of kind of the online sales number that you've given, can you talk to me all about kind of what extent that includes click and collect sales and what portion of that kind of touched the store in some way? Secondly, if I think back correctly, hopefully, to kind of the Nasty Gal acquisition, you-
... effectively kind of relaunched the website and you're offering almost from scratch on your own platform, with kind of 400 lines that are in, kind of, quickly built up over time. And will this be kind of a similar process that happens for each of these two brands? And thirdly, and finally, can you talk a little bit around the application of the test-and-repeat supply model to, I guess, what is a more expensive and complicated kind of occasionwear in tailoring offer? Is that as easy and as suited to your test-and-repeat supply chain, and do you expect the, I guess, the proportion of product bought in that way to be the same as it is for your existing brands?
Hi, Simon, it's Neil here. On the first question, the click and collect impact is probably around about 6%, around that level. But of course, that can, that can vary as we transition. But that's about the level that it has been historically, but of course, it's a longer-term average that we'd need to look at. And then probably John could talk about the how we're gonna build, build the range in a similar way to what we did with Nasty Gal.
Yeah. I'm probably coming on, Simon, to your question around the test and repeat. I suppose, remember, the test and repeat is really around 150- 200 pieces of a style, rather than if you're in a physical retail space where you're in the thousands. So clearly, you can get fabric for 150- 200 pieces a lot quicker. It's a lot less units as well, so you can test much faster than having to order thousands. And then clearly, from an investment point of view, if it's successful, we can decide whether we want to repeat it, repeat it to what level we want to repeat it at. But also, if it's not been as successful, our investment in stock is quite low.
Maybe some of the styles are a little bit more complex, but still, the key is around that 150-200 units per style. That's the key and the speed.
And on that piece, despite, I guess, a more complicated manufacturing process and those high- price- point- items, you know, you still think you'll be able to have that relationship with your manufacturers, where you go back and you reorder thousands, if that's appropriate, and get them delivered through to you in a handful of weeks?
Yeah, we still think that's appropriate. And listen, we'll probably have some suppliers who will need to learn those new ways that are currently dealing with the two brands. But in principle, we feel that this is something that's very achievable with the suppliers.
Okay, great. And then so just to circle back, kind of quickly on the, I guess, the comparison regarding kind of Nasty Gal in terms of the launch. Is that kind of what will happen, i.e., the website will effectively shut down and relaunch on your, kind of, current tech stack, and the, kind of, products will completely relaunch? Or is there an element of, kind of, product that the brand previously ordered that's still coming through the supply chain that you will retain and sell through?
It is a similar situation to Nasty Gal, where we'll be relaunching the website on our platform. But that's over a relatively short period of time, over eight weeks, so probably not the same. But we'll be, in the meantime, looking at getting the range for the peak Autumn/ Winter season ready for that launch on the 1st of October. So it's a similar situation, but probably over a shorter period of time.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Charles Allen from Bloomberg Intelligence. Please go ahead. Your line is now open.
Good afternoon, everyone. Just a couple of questions. First of all, you touched on this just now, but could you clarify on exactly what stock commitments you're inheriting here? And whether you... How many weeks of supply you expect to have, or whether you'll need to reorder? And then secondly, is there any way that either of the brands can continue to trade on the high street, or has your acquisition of intellectual property effectively closed down all the offline stores?
So in terms of stock commitments, we don't have any stock commitments at the moment, and we'll be building those up for when we launch the websites on our platform. So that's exactly what's happening there. So the administrator will be selling the stock that's currently in the pipeline, and we'll be building up the new pipeline, new range for the peak Autumn/ Winter season. And our transaction is about acquiring the online businesses only. So the stores will obviously be ceasing to operate over the next few weeks.
Right. But they can't be sold to someone else and continue to operate under these brand names?
No, that's correct.
Okay, thank you.
Thank you. And ladies and gentlemen, just to remind you, if you wish to ask a question, please press zero one on your telephone keypad now. There'll be a further pause while questions are being registered. And there are no more questions registered at this time, so I'm handing call back to you speakers for your closing comments.
Okay, everybody, thank you very much. We hope you got some further information out of that call, and we look forward to catching up with you all in September. Thank you. Bye-bye.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.