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Boohoo.com to invest in expansion following £300m flotation

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Boohoo.com has its sights on fast expansion funded by the £300m it is raising by floating on the London Stock Exchange later this month.


The fashion pureplay, founded in 2006, reported to the stockmarket this morning that it had successfully placed 600m shares at 50p each, putting the market value of the fashion pureplay at £560m at launch. Dealing is expected to start on March 14.

It plans to use £50m of the proceeds to fast-track its expansion, while it will also pay off the mortgage on its Burnley warehouse and invest in distribution. Around £240m will be used to repay existing investors.

Mahmud Kamani, joint chief executive of boohoo, said: "The placing and admission to AIM marks a significant step for boohoo as we invest in this exciting growth opportunity underpinned by the rapidly growing online retail market.

“We would like to welcome our new shareholders to the Company and look forward to continuing to develop our business providing market leading customer service for on-trend, value led fashion clothing and accessories as a publicly quoted company."

The retailer, which has more than 2.3m active customers, sells its own-brand clothing aimed at 16 to 24-year-olds, through English and French language websites, launched in 2006 and 2013 respectively. In the 10 months to December 2013, 37% of sales were international, coming in at £34m. Over the same period, sales grew by 70% to £91.9m, from £54.1m in the same period in the previous year, while adjusted pre-tax and exceptional items profits grew by 188% to £10.1m, from £3.5m last time.

Further expansion plans will be focused both on the global and UK markets. Boohoo cites figures suggesting the global apparel market is growing at 2.8% a year, and is expected to be worth £987bn by 2017. In the UK, it says, online retail sales are forecast to take 23.5% of total fashion retail sales by 2016.

“The directors believe that boohoo's exciting growth prospects are underpinned by forecast growth in both the domestic and international online fashion retail markets, the Company's highly efficient sourcing model and a robust infrastructure development plan,” the company said in its stockmarket update today.

Carol Kane, joint chief executive of boohoo, said: "boohoo is a lifestyle-driven, online destination and the 'go to' for the latest fashion trends at affordable prices. We are confident that our competitive position and growing customer base means that we are well placed to capitalise on the fast growing online fashion retail market. Our success to date, coupled with our exciting expansion plans, makes this an ideal time to bring the company to AIM."

The online fashion retailer follows AO.com onto the stockmarket. The appliances company has seen its value soar since launch, hitting £1.6bn shortly after the float. Both will soon be followed by multichannel retailer Pets at Home, expected to float for £1.2bn.

But some commentators have speculated that this series of retail flotations are part a dotcom bubble, which could in turn burst just as the dotcom bubble of the late 1990s/early 2000s did.

Our view: Burned in the dotcom bubble of the early 2000s, when huge valuations were put on never-profitable internet businesses, investors have been cautious in their approach to online retail ever since. Pureplays have been cautious about what appetite there might be from investors as well. Until recently only Ocado and Asos, among pureplays, were listed in the UK.

As to why, the assumption has been that pureplays might struggle to turn a profit. Ocado has yet to make a full-year pre-tax profit. Even with multichannel retailers, many investors have taken the view that online retail was often conducted at a loss, in order to protect and amplify market share. Tesco’s recent news that it made a profit of £127m on its online grocery service in its latest financial year challenges that assumption.

In this context, investors appear to see the flotations of AO.com and Boohoo.com as opportunities to get into the elevator of online commerce at the bottom floor, in the hope that they’ll move up swiftly. We’ll wait to see how that unfolds over the longer-term with interest.

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