Boohoo investors hope for stability after busy few months

Boohoo

Little actual detail is expected when Boohoo updates shareholders on its first quarter performance next week, but eyes are likely to be fixed on the online fast fashion retailer after weeks of turbulent news.

Investors will hope that the company, involved in a controversial buyout of PrettyLittleThing and hit by a short-seller’s report claiming it overstated its free cashflow, can exert an aura of calm as in its trading update on Wednesday.

In March, just before the UK economy shut down, nervous shareholders sent Boohoo’s shares tumbling to only a little over half the value of where they were trading in February.

But investors that stuck with the company, or bought in at a low of 157.5p were rewarded soon after lockdown, as the company ticked back up to as high as 390p per share.

“Boohoo has had its share of ups and downs over the past few years, and this year’s share price moves haven’t been any different. The online retailer saw record highs in the share price in January before a spectacular Covid-19 collapse to three-year lows, which was then followed by a recovery to new record highs last month,” said CMC Markets chief market analyst Michael Hewson.

It has been two months since the company announced a strong set of results for last year. Revenues were up by almost half, and profit even more so.

But it has hardly been a quiet time. In May the company was forced to defend itself from the claims of a short-selling hedge fund.

Matthew Earl’s ShadowFall accused bosses at the retailer of misleading shareholders over its financials. Boohoo denied this.

It also warned that the £200 million the firm had raised for acquisitions from a share placing could be used to buy the remaining stake of PrettyLittleThing that Boohoo did not own from Umar Kamani, the son of Boohoo’s founder and chairman.

Just days after the report, Boohoo paid £270 million for Umar Kamani’s third of PrettyLittleThing, far below ShadowFall’s claims that it could cost up to £1 billion.

Hewson said: “The short-seller also claimed that the company was treating cash generated by PLT as though it owned the business outright, saying it could cost the company almost £1 billion to buy the remaining stake.

“The resultant buying out of the said stake by Boohoo management helped put paid to that claim.

“This week’s first quarter numbers come against a backdrop of a turbulent quarter and could go a long way to further put a hole in the claims of last month’s short seller, as well as reassure investors who have had quite a journey so far this year.

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown said: “Despite seeing sales initially struggle because of lockdown, Boohoo’s April trading was actually up year-on-year. This is no mean feat given the current climate and we’re keen to see if the trend has continued.”

“It’s a trading statement so we aren’t likely to get profit or margin detail, but it will be important to look out for any commentary on discounting. Gross margins have come under pressure as the retail sector becomes increasingly competitive.”

Reporting: PA Media