Boohoo (BOO Stock) share price expected to drop after forecast downgrade

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It hasn’t been a good year for Boohoo’s stock price, nor for its shareholders, for that matter, with shares falling more than 25% since the start of the year.

Once the darling of the Instagram generation, his reputation took a hit last year when it was revealed that a supplier factory in Leicester was operating below required standards set by UK Health and Safety and also paying below salary minimum.

This prompted the brand to lose a number of its online influencers and find itself shut out by other leading retailers, also concerned about how its young cohort of customers might react to being associated with this type of behavior. .

Despite the damage to the brand, management seemed to have lifted some of these issues when they made the decision to drastically reduce the number of vendors they use in their supply chain to 78 from more. of 200, as it sought to consolidate its bad reputation, improve its oversight and rationalize its cost base.

Sadly, these issues came to the fore in July after a report on Sky News, to which the company responded with a strong reaffirmation.

Leaving aside the noise around supply chain issues, the company got off to a good start when it released first quarter numbers in June, building on the momentum we enjoyed at the end of the year. last which saw the company register a 41% increase. revenue and a 35% increase in pre-tax profits to £ 124.7million.

So far so good, but management has reduced its guidance for the second quarter as well as the rest of the year, with a 25% sales growth figure, which has helped push stocks down even lower. .

This caution appears to have been well justified despite record revenues of £ 975.9million, an increase of 20% from the same period last year and 73% from 2019. Market expectations have risen. however, were set a little higher at just over £ 1 billion.

Profits also beat expectations, largely due to rising costs, with Adjusted EBITDA 15% lower than expected at £ 85.5million. Adjusted profit before tax fell 20% from a year ago to £ 63.8million.

Part of the reason for the rising costs was a record investment of £ 172million, but as long as it helps support long-term growth, most investors will look beyond that.

The most important detail was that the retailer also lowered its forecast for sales growth from 25% to between 20 and 25%.

It would appear that despite the easing of lockdown restrictions, any pent-up demand appears to have been offset by rising costs, as well as consumers’ willingness to go out more and shop in-store.

That’s what seems to have hurt Boohoo’s numbers, that and maybe set the bar too high. Consumers have had most of the first half of this year to shop online, and the easing of restrictions has caused many people to jump off their keypads and head back outside.

Even with the weather getting colder, Boohoo appears to be cautious about the outlook for the future, especially from a cost perspective, which they believe will continue to remain high in the second half of this year.

While the shareholder was hoping today’s Q2 and H1 numbers would help turn the situation around for the company, today’s update is not particularly encouraging.

On the bright side, Boohoo was able to announce a deal with the Alshaya Group in the Middle East that will see boohoo brands in Debenhams stores across the region, which should help the company expand its addressable markets even further.


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