boohoo (LSE:BOO) shares have fallen 8% since 3 October 2023. That was the day on which the company released its results for the six months ended 31 August 2023.
At first glance it’s easy to see why investors took fright.
Sad times
Compared to the same period in 2022, revenue was down 17%. Having previously been profitable, the loss before tax was £9.1m. And net debt increased by £24.6m, to £35m.
The directors announced that for the full year, revenue is expected to be 12%-17% lower than in 2023. On 16 May 2023, they had forecasted a drop of 10%-15%.
The deterioration in sales is expected to impact profits. The company is now forecasting adjusted EBITDA (earnings before interest, tax, depreciation, amortisation, and exceptional items) to be £58m-£70m. The previous estimate was £69m-£78m.
The heady days of 2020/21 — when adjusted EBITDA was £174m — must seem like a distant memory to shareholders. Those unfortunate enough to have bought the stock in June 2020 are now sitting on paper losses of 93%.
But I think there are signs of a turnaround.
Don’t cry
The gross profit margin is improving as the company seeks to sell more of its own-brand items, which, although cheaper, are more profitable.
It’s expecting the adjusted EBITDA margin to be 4%-4.5% for the year ending 28 February 2024. This is an improvement on the 3.6% recorded during the 2023 financial year. The directors have set a medium-term target of 6%-8%.
Importantly, the level of returns is down. In 2022, the company became one of the first online retailers to introduce a fee to encourage shoppers to buy more sensibly.
Stock levels have also fallen, which has helped to release some cash.
And although net debt is increasing, it’s still relatively low for a listed company.
My view
Although I think the company may have turned the corner, there’s still a long way to go.
Before boohoo’s latest results were released, the average forecast of the 17 analysts covering the stock was for revenue of £1.705m, and adjusted EBITDA of £69.7m, in 2024.
The directors’ expectations are for sales to be significantly below this level. And the profits forecast of the ‘experts’ is at the top end of the company’s own estimate.
| Measure | FY 2020 | FY 2021 | FY 2022 | FY 2023 | FY 2024 (company forecast) |
| Sales (£m) | 1,235 | 1,745 | 1,983 | 1,769 | 1,468-1,557 |
| Adjusted EBITDA (£m) | 127 | 174 | 125 | 63 | 58-70 |
| Adjusted EBITDA margin (%) | 10.2 | 10.0 | 6.3 | 3.6 | 4.0-4.5 |
Competition is also fierce. Accounts filed at Companies House show that Shein had UK sales of £1.12bn, between September 2021 and December 2022. And ASOS, which has had its own problems, appears to be further down the road to recovery than boohoo.
Although I’m tempted to make an investment, I feel it’s a little too risky for me.
But others have been buying the stock.
The collapse in its share price has prompted talk of a potential takeover. Frasers Group now owns over 10% which it describes as a “strategic investment“.
I’m going to steer clear for now and revisit the company when it announces its full-year results in May 2024.
