17th Aug 2022 09:59
(Alliance News) - Shore Capital Markets has a preference for boohoo Group PLC over peer Asos PLC, deeming its leadership team to be on more stable footing.
Shore rates Asos at 'sell' but boohoo at 'hold'. The broker's latest research on the companies came after Asos announced a reshuffle of its top team.
The retailer said Mat Dunn will step down from his roles of chief operating officer and chief financial officer. Asos will restructure its executive team.
Dunn will remain in his role until at least the end of October and then stick around until the end of 2022 to aid the transition. Dunn joined Asos as CFO in April 2019 and took on the COO role in October of last year.
boohoo, meanwhile, on Wednesday said it has taken a 7.1% stake in Revolution Beauty Group PLC.
"The investment reflects boohoo's belief in the growth potential of Revolution Beauty and it intends to be a supportive stakeholder and long-term partner," boohoo explained.
boohoo said it already sells Revolution Beauty products, including in its online department store Debenhams.
Analysts at Shore commented: "These are two very different statements, in our view. While it is undoubtedly tough these days for fast fashion pure-play businesses as consumers prefer physical shopping, Asos appears to be virtually back to square one, with the company now in search of a new CFO."
Dun's departure follows former CEO Nick Beighton announcing his resignation. In October, Beighton said he would step down after 12 years with Asos, including six as CEO. At the time, the company said it intended to shake-up the board to "underpin delivery of the next phase of its global growth strategy".
Following Beighton's departure, Dunn, who joined Asos in April 2019 as CFO, took on the additional role of COO. In June, Jose Calamonte joined Asos as its new CEO, while the company also named Jorgen Lindemann as chair.
Shore added: "We think it is increasingly likely more changes will follow as we see executives from the previous leadership taking up other roles outside the company. Therefore, we expect it will take longer for Asos to recover ground and we reiterate our 'sell' stance.
"Meanwhile, boohoo's leadership looks more stable and better positioned to capitalise on current market conditions. While difficult to predict when consumer (and investor) sentiment will normalise, we see boohoo closer to a turnaround and reiterate our 'hold' rating."
Asos shares were 7.4% lower at 889.00 pence each in London on Wednesday morning, the worst mid-cap performer. boohoo shares were down 2.7% at 59.69p.
Revolution Beauty, meanwhile, was up 20% at 28.75p.
AJ Bell analyst Danni Hewson commented: "Everyone loves a bargain when they go shopping and retail companies are the same. Retailers don't really want to cut their prices unless it means shifting large volumes, but what they do enjoy is buying rival businesses at a discount, either in part or full.
"For years, Frasers was the king of this strategy, waiting with its chequebook as soon as any retailer went into administration. But in recent years we've seen Next take strategic equity stakes, while boohoo and Asos have been keen to buy companies or brands off the scrapheap. boohoo might be facing slowing demand as its customers battle the cost-of-living crisis, yet that hasn't stopped it taking a strategic stake in troubled make-up seller Revolution Beauty. The target recently ran into problems with its auditors over accounting issues, causing the share price to collapse."
boohoo's backing for Revolution Beauty comes after a difficult few weeks for AIM listing. The stock has been hit by a warning on cost inflation and a statement that its auditors found "certain accounting issues" that could have a "material impact" on results for the year ended February 28, 2022.
Hewson added: "While we still don't know the outcome of this probe, boohoo clearly didn't want to put an opportunity to waste and has bought 7.1% of the business while the shares were going cheap. boohoo bought assets from Debenhams last year as part of a plan to be a bigger player in the beauty products industry. Owning a slice of Revolution Beauty could speed up this strategy, particularly if it uses its status as a large shareholder to get good deals on product supply."
By Eric Cunha; [email protected]
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