Boohoo – Trading One Challenge For Another

Published on
  • Boohoo Group PLC (LON:BOO)’s sales fell 8% in the three months to end of May
  • All regions declined but Rest of World, with USA the worst performer
  • Sales up 75% on a pre-pandemic basis
  • Cost inflation and tough competition mean underlying cash profit margins are still expected to be 4-7% for the full year

Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown:

Another Challenge For Boohoo

“The very worst of the supply chain scandal is behind boohoo, but it seems one challenge is being traded for another. Very strong comparisons with last year make current trading look poor, as the world is no longer frantically ordering loungewear from the sofa, and when we do place an order, it’s a lot more likely to end up in the returns heap back at boohoo HQ. That doesn’t just hurt sales, but margins too, keeping a lid on full year profit potential.

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The broader environment isn’t too accommodating either. Rising input costs, supply disruption and huge competitive pressure means boohoo is having to peddle very hard to keep hold of, rather than grow, market share. There is no knocking the impressive 75% increase in revenue on a pre-pandemic basis, but the hard work is now. Fast fashion is also likely to come under fire as inflation bites. While the price point is more palatable for a boohoo dress, the very occasions it’s being bought for, like a big night out or holiday, are going to find themselves rubbed off calendars if current conditions persist.

Over the longer-term boohoo has some real nuggets of opportunity, especially abroad. That’s a large reason why the stock still demands a price to earnings ratio similar to that of US tech giants these days. Whether or not that’s warranted is a separate question entirely.”

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