- Investor confidence in fast fashion retailer shaken
- Boohoo losing US share to Chinese competitor Shein
- Broker warns Boohoo will ‘struggle to reinvigorate growth’
Shares in online fast fashion retailer Boohoo (BOO:AIM) have fallen approximately 70% year-to-date following profit warnings and downgrades to earnings estimates that have shaken investor confidence in its growth story.
Results for the first half to August 2022 revealed a lurch into loss on a 10% drop in sales and management warned a similar rate of sales decline will to persist over the rest of the financial year ‘if these conditions continue’.
Online-only operator Boohoo’s razor-thin margins have been squeezed by cost pressures and product return rates that have been significantly higher than pre-pandemic levels.
Investors are concerned that Boohoo, which also owns the Debenhams brand and recently upped its stake in beleaguered Revolution Beauty (REVB:AIM), will struggle to return to its previous 10% earnings before interest, tax, depreciation and amortisation (EBITDA) margin levels due to price cuts, permanently higher returns and marketing costs and a slower pace of sales growth.
Liberum Capital has a ‘sell’ rating on Boohoo and is less convinced than management that the retailer can return to pre-pandemic growth and margin rates.
As the broker warned on 11 November, Boohoo hasn’t gained much share of the UK online clothing market in the last three years and has ‘clearly lost massive ground’ to Shein in the US and to online marketplaces in rest of Europe.
It added: ‘Given the ground already lost to Shein and plans to open further local distribution centres in the US, we think Boohoo will struggle to reinvigorate growth even after the opening of their new distribution centre (or at the least the growth could be rather costly).’
