Boohoo’s bumper surge in sales over the past year has garnered attention this morning, but the retailer’s share price appears to tell a somewhat different story.
For a start, at the time of writing shares in AIM-listed Boohoo were down 1.23 per cent or 4.00p to 322.50p. A year ago the group’s share price was 313.70p.
While the retailer has added a string of big-name brands like Debenhams, Dorothy Perkins and Oasis to its portfolio in the last year, its share price has made little progress, growing only around 10 per cent.
Still wow? It’s worth taking a closer look at Boohoo’s share price performance
A glance at the group’s share price over the past year tells a tale of some fairly hefty volatility. In early July 2020 the share price was around 400p, but by the middle of the month it was around 210p. By the end of September it had climbed back to 378p.
Unlike bricks-and-mortar based retailers, Boohoo has been shielded from enforced closures during each lockdown and benefited from people’s desire for comfy clothes to wear at home and while exercising. On its website, its sales section currently has dresses available for as little as £3.
John Moore, senior investment manager at Brewin Dolphin, thinks there are a number of reasons for Boohoo’s lacklustre share price performance over the past 12 months.
He said there were ongoing questions around ‘ethics, sustainability and supply chain issues.’
He added: ‘The second reason is the feeling that the acquisition of some brands over the last year or so may not offer the sales reach and density of the core brands and, therefore, could potentially dilute its proposition.
‘Finally, the acquisition of a new headquarters in London seems a curious decision when there could be other investment opportunities around, not least buying back the company’s shares.
‘There is a cautious tone to today’s statement from Boohoo, but that is understandable given the wider economic context in which the business finds itself.’
Last month Boohoo announced it had cut its supplier network by around 400 as it seeks to move on following last year’s allegations of low pay and shoddy working conditions across its network.
The retailer has been battling to improve oversight of its supply chain since ordering an independent review last summer. The Alison Levitt QC-headed review concluded that Boohoo ‘did not deliberately allow poor conditions and low pay to exist within its supply chain, it did not intentionally profit from them and its business model is not founded on exploiting workers in Leicester.’
Volatility: A chart showing what’s been happening to Boohoo’s share price in the past year
The review also concluded that Boohoo could have been a force for good if it had been ‘willing to take a different approach to how it both views and interacts with the Leicester supply chain.’
Allegations had surfaced of lengthy working hours for pay packets as low as £3.50 an hour across pockets of the firm’s suppliers. The dismal allegations sparked a £1billion hit to the group’s share price.
In November, Boohoo appointed a former High Court judge to examine its business practices.
Sir Brian Leveson, who is best known for leading the inquiry into press ethics after the phone hacking scandal, was appointed to chair an independent review of the company’s supply chain and ethics.
Danni Hewson, an analyst at AJ Bell, said: ‘Disruption to air freight has impacted global growth and governance with a capital G is front and centre as the group look to put supply chain issues firmly in its rear-view mirror.’
She added: ‘Its commitment to transparency includes publishing a list of its international manufacturers in September and a decision to cut loose a number of UK suppliers which didn’t mesh with the group’s values.
‘What investors are waiting for is the commitment from bosses to link these targets with financial reward.
‘Boohoo has confirmed that discussions have been had and further details will be shared in the annual report due out later this month. This is the crucial part of the jigsaw, a tangible link between social responsibility and fiscal reward.’
Meanwhile, Susannah Streeter at Hargreaves Lansdown commented: ‘The supply chain issues are still hovering with a whiff of scandal, but the company will be hoping its root and branch review of factories, will calm investors’ concerns about its ethical credentials. It will be highly conscious that any flare up of concerns could derail its global expansion plans.’
Looking ahead, Boohoo said it expects the benefit of lower return rates to start falling as the year rolls on. It will also be facing mounting competition from other retailers amid the continuing easing of lockdown restrictions.
It said: ‘Trading in the first few weeks of the financial year has been encouraging, however, the economic outlook remains uncertain and we expect the benefits seen from reduced returns over the last twelve months to begin to unwind this year, whilst still experiencing significantly elevated levels of carriage and freight costs.’
Boohoo added: ‘Margins for established brands are expected to be in line year on year. We expect investment in newly-acquired brands to dilute the group’s overall adjusted EBITDA margin by 50-100bps, with the group’s adjusted EBITDA margin expected to be in the region of 9.5-10% for the full year.’
Revenue growth for the year to February 2022 is expected to be around 25 per cent at group level.
What should investors do now?
As ever, the key question for Boohoo’s shareholders is whether to hold, sell or buy shares in the retailer.
This is a tricky issue as its unclear whether the surge in online shopping will continue as lockdowns ease up. The group will also continue to be under heavy scrutiny when it comes to ethics, corporate governance, sustainability and supply chain issues.
Analysts at Liberum said: ‘While the continued strong financial performance suggests a BUY rating, we remain cautious given the scale of the ESG challenges facing the group, the possibility of follow-up investigations and potential financial impact from an ethical supply chain though the company guidance dismisses this. We therefore rate Boohoo group HOLD.
‘If Boohoo can adequately deal with its ESG issues, there remains significant upside to the share price. Greater clarity on ESG issues and that there will not be any future financial impact from implementing an ethical sourcing and supply chain model or penalties for past breaches; is required for us to return to BUY.’
Speaking to This is Money, Mr Moore of Brewin Dolphin, added: ‘It’s reasonable to remain hopeful about Boohoo’s prospects; but, the caveat to that is the business will likely have a quieter next six months, as spending could be re-focussed elsewhere with the economy opening up and the summer months ushering in better weather.
‘That shouldn’t put off long-term investors, though, and key to the company’s direction will be its strategy and opportunity set, which should become a little clearer by the next trading statement.
‘We should also see more clarity on some of the short-term aspects that have recently affected Boohoo’s share price and the measures it will take to overcome them. Investors will need to have patience and evidence that changes will be forthcoming.’
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