Investors have lost a lot of money betting that Boohoo (LSE: BOO) shares will swing back into fashion.
They’ve ended up catching a brutal falling knife, down 90% in five years and 18% over the last 12 months.
That still hasn’t quelled interest in the stock, both from individual investors and marauding rivals. Hope springs eternal, I suppose.
Boohoo was once the darling of the fast-fashion world, wowing online shoppers with its popular clothes, zappy marketing and rapid delivery model.
Can this stock ever recover?
But it’s a competitive, fast moving scene, fraught with risk as investors have discovered. Questionable supply chain practices, ethical concerns over fast fashion, the wider cost-of-living crisis and growing customer returns eroded profits and hammered the shares. Then Chinese rival Shein popped up, with deeper pockets.
Worse, early success had gone to management’s heads with Boohoo heir Umar Kamani throwing a celebrity-packed £20m wedding on the Côte d’Azur in May, then axing 1,000 staff days later.
Plans to hand £1m each in performance bonuses to CEO John Lyttle and co-founders Mahmud Kamani and Carol Kane were blocked by furious shareholders. They deemed plunging sales, shrinking cash flows and rocketing debt unworthy of such largesse.
Last September’s closure of a supposedly game-chasing £80m US distribution centre in Elizabethtown, Pennsylvania, may have saved money but only added to the sense of disarray.
Interim results published on 13 November showed a 15% drop in revenues to £620m, with youth brands including PrettyLittleThing struggling amid weak consumer activity and external pressures.
There were bright spots, with revenues climbing at Karen Millen and Debenhams Marketplace. Boohoo also secured a new £222m debt refinancing agreement.
All that and Mike Ashley too!
Enter Mike Ashley. His Frasers Group vehicle holds a substantial stake in Boohoo, and isn’t impressed. So far, Boohoo has resisted attempts to give Ashley a directorship, citing competition concerns. The battle will no doubt continue.
There was some excitement in January, when it emerged that Carol Kane had put £99,000 of her own money into Boohoo shares (twice!), with new CEO Dan Finley investing a similar sum in December. Did they know something we didn’t?
It hasn’t worked out well for them in practice. The Boohoo share price is down 22% in the last three months. That would have turned £100,000 in £78,000, a loss of £22,000. So is there any hope of a turnaround, ever?
The six analysts offering one-year share price forecasts have produced a median target of 30p. That’s an increase of 9% from today. Given recent chaos, that would have to be deemed success. No guarantees, naturally.
While Boohoo’s efforts to cut costs and refocus its brand strategy are steps in the right direction, it faces huge challenges, from internal restructuring and leadership changes to external pressures and intense competition.
With the cost-of-living crisis dragging on, and Donald Trump’s tariff threats spreading wider uncertainty, I wouldn’t invest £999 of my own money in Boohoo today, let alone £99k. Investors considering a punt this stock should exercise extreme caution.
This post was originally published on Motley Fool
