- Strategic review launched
- Debt refinancing agreed
- Sales continue to slide
After an inglorious five years with the group, John Lyttle is to step down as Boohoo (BOO:AIM) chief executive as the struggling online fashion retailer launches a strategic review to ‘unlock and maximise shareholder value’.
That is code for corporate restructuring and points to a sale or demerger of some of its assets.
The loss-making fast-fashion retailer behind the eponymous label as well as the PrettyLittleThing, Karen Millen and Debenhams brands has also signed a new £222 million debt refinancing which provides it with some breathing space and will support the ‘next phase’ of its development.
Manchester-based Boohoo has come under pressure from shareholders, Mike Ashley’s Frasers (FRAS) among them, to stop the rot with its disastrous share price performance.
The stock has plunged almost 90% to 32p over the past five years.
While it flourished during the Covid lockdowns, Boohoo has subsequently suffered from heightened competition, changing consumer buying habits, cost pressures and regularly missing earnings expectations, all of which have weighed on the company’s valuation.
WHICH BRANDS COULD BE SOLD?
In a business update (18 October), the board insists Boohoo remains ‘fundamentally undervalued’ following the developments of recent years.
These have created a company with five core brands, including the ‘reinvigorated’ Debenhams and Karen Millen, addressing a diverse global customer base.
As executive chairman Mahmud Kamani explains: ‘The business has evolved over the last few years and has an offer that is much wider than our original focus on young fashion. The time is now right to consider options with regard to corporate structure, with the aim of maximising shareholder value.’
Russ Mould, investment director at AJ Bell, commented: ‘Selling Karen Millen and Debenhams is the obvious starting point, leaving Boohoo with a sharper focus on a younger target market. When Boohoo talks about unlocking shareholder value, it means getting someone to put a fairer price on certain divisions by separating them from the parent group. In doing so, they wouldn’t carry the stigma and valuation discount that comes with being part of a flagging retail group.’
NUMBERS STILL LOOK UGLY
Boohoo also provided a trading update for the six months ended 31 August, which revealed a disappointing 15% drop in sales to £620 million.
Revenues were down in the UK, US and Rest of World regions as its youth brands including PrettyLittleThing, boohoo and boohooMAN continued to struggle.
First-half adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) fell by £10 million to £21 million, although Boohoo expects to deliver improved second-half sales and a stronger earnings performance.
AJ Bell’s Mould added: ‘It looks like chief executive John Lyttle has decided he doesn’t want to be around for the break-up. He’s done everything he can to save the group and his strategy hasn’t worked, so he will bow out before Boohoo morphs into something different. It’s fair to say he won’t leave with his head held high. Trading is still awful, with a shocking performance outside of the UK.’
Mould also warned: ‘A new debt facility might look as if it gives Boohoo some breathing space but nearly half of it is repayable by next August. That means it had better find some solutions to the problems soon.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
