28th Sep 2022 12:44
(Alliance News) - boohoo Group PLC's first-half results did little to calm investor fears over the future of fast fashion.
The retailer's key demographic of teens and young adults have been squeezed by cost-of-living worries. There are also concerns that more environmentally-conscious consumers are moving away from fast fashion.
boohoo shares slid 9.0% to 33.43 pence each in London on Wednesday. The stock is down 87% over the past 12 months.
"There is a growing sense that a significant amount of boohoo's customer base is slowly turning against fast fashion. The company's announcement earlier this year that it was partnering with Kourtney Kardashian on a 'sustainability journey' was met by many with sarcasm and disbelief across social media," Edison analyst Russell Pointon commented.
Pointon looked to California-based Patagonia as an example of the popularity of sustainable clothing. Patagonia's owner Yvon Chouinard famously sold the company earlier this month to an environmental trust. The company notably gives a portion of its sales to sustainable causes.
Those measures contrast wildly with concern about boohoo's environmental, social, and corporate governance reputation. It was not too long ago that the company completed a review of its supply chain, following widespread criticism.
"The stark difference between these two businesses presents the question of whether consumers will vote with their money in the coming months and choose more sustainable brands over fast fashion retailers such as boohoo," Pointon added.
boohoo swung to a first-half loss, with earnings hurt by weak consumer confidence and a staggering number of clothing returns. Return rates were "up significantly year-on-year", boohoo said.
"The difficult trading update reflects the ongoing challenges faced by almost all fashion retails. ASOS and boohoo's key demographic of 16-25 year olds have been heavily impacted by the cost-of-living crisis, with many choosing to cut spending on new clothes and opt for cheaper secondhand alternatives," Edison's Pointon added.
In the six months to August 31, revenue fell 10% year-on-year to GBP882.4 million from GBP975.9 million. Revenue was up 56% from pre-virus levels, however. boohoo swung to a GBP15.2 million pretax loss from a GBP24.6 million profit a year earlier.
Margins weakened markedly. Its adjusted earnings before interest, tax, depreciation and amortisation margin fell to 4.0% from 8.7%.
boohoo now expects an annual adjusted Ebitda margin between 3% and 5%, trimmed from its previous 4% to 7% guidance range.
Aside from ESG-worries, markets are also mindful of consumer confidence concerns.
"The group reports significant progress towards long-term growth ambitions but we must remember that the long term is a series of short terms, and it remains to be seen how long weak demand, inflationary pressures, and supply-chain bottle necks will continue for," Hargreaves Lansdown analyst Derren Nathan commented.
There was a bit of good news, however, analysts at Shore Capital Markets noted. boohoo in July began charging for returns, save for those using its premium subscription-based service.
"While the charge is limited to customers that do not have a Premier account (free next-day delivery for an annual cost) and should create loyalty, we wonder about the impact on volumes as consumers tend to use different platforms for their shopping," Shore explained.
"However, we highlight an increase in average order value, GBP56.38 versus a year-ago's GBP45.41, which could represent a first encouraging sign of improving economics."
By Eric Cunha; [email protected]
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