4th May 2022 11:16
(Alliance News) - boohoo Group PLC on Wednesday suffered another share price plunge on more evidence that online fashion retailer has struggled to get to grips with some of the challenges caused by the end of the virus pandemic.
The stock was down 16% at 67.22 pence each in London on Wednesday morning.
Wednesday was not the first time boohoo has faced a brutal share price sell-off. Shares are down nearly 80% over the past 12 months, with market confidence in the stock knocked by guidance cuts, margin pressure, and supply chain governance questions.
boohoo once again cautioned that clothing return rates have been high. It has also seen its international operations hit by supply chain pressures that have lengthened customer delivery times, something that undermines the entire fast-fashion business model.
"There's no doubt there's demand for boohoo's products, but persistent shipping challenges mean servicing that demand is becoming increasingly difficult, especially in overseas growth areas. US customers are still having to wait longer than they'd like to receive their orders, as supply chain issues linger on," Hargreaves Lansdown analyst Matt Britzman commented.
"Plans are afoot to build a distribution centre in the US which will help – but it's costly and won't provide an immediate solution. Fast fashion comes with customers willing to flit between brands. If they can't get the latest trends quickly, US customers might move on permanently, adding a layer of risk to these projects."
In a sign that demand is still strong, revenue in the year to February 28 increased 14% to GBP1.98 billion from GBP1.75 billion. Compared to financial 2020, revenue was up 61%.
However, pretax profit sunk 94% to GBP7.8 million from GBP124.7 million a year prior and by 92% from the pre-lockdown comparative.
Profit has been hit by stubbornly high product return rates, "subdued" consumer demand and woes in boohoo's international arm.
During the pandemic, online retailers benefited from greater demand, as high street counterparts were forced to closer shutters. But the pandemic also led to supply chain blockages.
AJ Bell analyst Russ Mould commented: "We're experiencing the great reset for online retailers. After two years of joy during the pandemic thanks to the accelerated shift from physical to digital channels, growth rates across large parts of the retail sector are now falling short of expectations. Demand is weakening, it is costing a lot more to run these types of businesses, and supply chain issues continue to cause a headache.
"boohoo has followed in Amazon's shoes by effectively saying growth is more challenging to achieve. Its margins are falling, customers are being fickle with their purchases and sending more items back, and delivery delays are making its overseas operations less efficient."
Even though boohoo offers cheaper goods than some other retail alternatives, it still could suffer from the cost of living crisis, Mould said.
"boohoo benefited from its low-price points meaning customers were happy to keep hitting the 'buy' button as the cost of a dress or a top wasn't too demanding. Now, they need to check if there is enough money in their bank account to pay the bills and buy the weekly shopping before thinking about any treats from clothing or other types of retailer selling 'nice to have' products," he said.
"Boohoo seems to have a plan to cope with the current pressures, and it remains confident about the future. However, some things are out of its control, principally demand. In this environment expect to see a price war as retailers go for sales volume over profit. That implies further margin compression which is not a good situation to be in."
Third Bridge analyst Harry Barnick, in a research note entitled 'the bubble has burst', said strong competition also has hurt boohoo.
Barnick explained: "boohoo's customers are faced with an unprecedented rise in the cost of living and seem set to cut back on fast-fashion spending as a result. Shein's growth has compounded boohoo's problems, as the Chinese competitor is taking share of wallet from the British fast fashion customer."
Barnick also drew attention to environmental, social and governance factors.
"boohoo's fast fashion model and poor track record of production are a key risk in this context," Barnick explained.
boohoo has faced some high-profile ESG issues, prompting the company to launch its 'Agenda for Change' strategy.
The programme was instituted after the retailer faced claims of worker exploitation at its Leicester factory.
Back in October 2020, boohoo confirmed it ended a relationship with a Leicester-based firm that was linked with fraud and money laundering. And in March 2021, it slashed its supplier network by more than 400 firms.
By Eric Cunha; ericcunha@alliancenews.com
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