ESG concerns

The firm’s business model rests upon the speedy design, production, and advertising of its products – fast fashion. This allows high volumes of garments to be created for low costs to the consumer. While this may sound promising on paper, Boohoo has been embroiled in numerous worker scandals as a consequence.

For example, in September 2020, a report by the Guardian indicated that workers at third-party suppliers were earning well below minimum wage in addition to enduring poor working conditions. The firm was also subject to a class-action lawsuit after being accused of misleading advertising in the US. In my opinion, these are some of the key reasons why investors have turned sour on Boohoo shares.

Another headwind Boohoo is going to have to contend with in the coming months is the threat of rising inflation. As prices rise across the world, it could pose a serious risk to Boohoo’s low-cost, high-volume operations. And supply chain issues have already impacted the firm, leading to 10-day delivery times to the US, which is a vital sales region for Boohoo.

In addition to this, the 2021 Q3 results, released in December 2021, have highlighted that the firm’s pre-tax margin outlook has been lowered from 9% to 6%. Factoring in tax, these margins will shrink further. Falling margins lead to reduced profitability which is the last thing Boohoo needs.

Reasons to be cheerful about Boohoo shares

Yet one reason that Boohoo shares do appeal to me, is the fact that the firm owns a pretty impressive arsenal of brands. It acquired a number of these retailers out of administration in 2021, the largest of which was Debenhams. In addition to this, its US distribution centre is expected to open in 2023, significantly expanding operations in the region. The US contributed to a quarter of revenues in 2021, so this seems like a great move to me.

Couple this expected future growth with the current price-to-earnings ratio of just 9.3, and Boohoo shares do look attractive to me. Perhaps the current share price could offer me a discounted entry position for future growth.

What I’m doing now

Yes, Boohoo shares are cheap, and the firm has some exciting plans ahead. However, I think that short-term rising costs could place a huge strain on the firm this year, especially considering its low margins. In addition to this, the ESG concerns are a big moral red flag for me. Therefore, I won’t be adding Boohoo shares to my portfolio any time soon.

The post Boohoo shares are down 30% this month: should I buy now? appeared first on The Twelfth Magpie.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A look at Superdry’s financials

Financially, it was not the most successful year in Superdry’s history, leading some to speculate on whether its nascent recovery would continue or not. Releasing a trading statement for the financial year to 24 April last week, we saw how its performance was it hard. Revenue fell 21% year-on-year (YoY) from £704m to £557m. Store-generated revenue took the brunt of this, falling 51% from £287m to £141m, due to obvious, Covid-related, reasons. 

However, most retailers suffered in the past year and Superdry still had its e-commerce card to play. Online retail sales grew 34% to £203m, from £152m a year ago.

CEO Julian Dunkerton was impressed with this e-commerce performance, saying the strengthened e-commerce presence helped mitigate the impact from enforced store closures.

He also said the firm returned to revenue growth in Q4 — which was an important development — and its full-price stance over the period meant a “significant online margin improvement”. 

And of course, revenue generated through online retail will be supplemented by the reopening of stores nationwide as lockdown easing continues. 

Superdry’s share price performance

Last Thursday, Superdry stock soared 16% following its update for FY21. With revenue falling, I could be asking myself why?

Well, as explained above, e-commerce holds a lot of promise for the company, as does the ongoing economic reopening. What’s more, Q4 2021 was a promising preview of what that economic reopening means for the business moving forward. Group revenue for Q4 increased by 0.8% to £118m, with a 26.6% rise in e-commerce sales and a 13.5% rise in wholesale offsetting a 51.5% drop in store sales. 

And despite its dramatic full-year drops in revenue, company liquidity remained strong. Net cash came in at £39.4m vs £36.7m in the previous year.

My biggest concern about Superdry’s share price

Fashion is a tough industry and product missteps can devastate sales. The rise of pure-play online retailers, such as ASOS, has provided Superdry with stiff competition. This has also posed a threat to the power of its brand, which is not quite what it used to be, in my opinion. Should Superdry be unable to buck its current long-term downward trend, it may have further to fall. 

Growth potential

Yet I have been very impressed with Superdry’s ability to get through Covid-19 and remain liquid. Despite such heavy revenue losses, the fact that it can maintain positive cash flow and boost its online segment presents a lot of hope for its long-term potential. 

And with Superdry’s share price currently just a fraction of its five-year-high (2,074p in January 2018), I believe its potential to return to those heights would make it a worthy investment for me if I had £1,000. 

The post The 1 retail stock I’d buy now with £1,000 appeared first on The Twelfth Magpie.

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Jamie Adams holds no position in Superdry. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

When I saw the recent results of retailer Superdry, I wanted to find more long-term buy-and-hold opportunities in the clothing retail sector. I looked at JD Sports (LSE: JD) and Next (LSE: NXT). 

JD Sports Fashion

When it comes to British leaders in sports fashion, JD Sports is up there. This FTSE 100 retail stock has been — like the rest of the retail sector globally — undergoing a significant shift to omnichannel, while its share price has jumped almost 70% in the past year, from 539p to 916p.

Impressively, despite the widespread closure of its physical locations, JD Sports made an enviable pre-tax profit of £421.3m in 2020 — down just 5% year-on-year (YoY). What’s more, rapid e-commerce growth helped overall revenue increase 1% YoY to £6.16bn. 

I am very excited by the prospect of store reopenings, which should further boost JD Sports’ income stream. The FTSE 100 member has already proven that it can be a dual-front e-commerce/brick-and-mortar revenue-generating machine. This could grow even more thanks to international growth, with 55% of total sales now coming from both mainland Europe and the US.  

A couple of things concern me though. The sports fashion industry is hugely competitive, and in order to expand internationally, as it has been doing, it will need to spend more money. This could lead to overstretched resources if JD is not careful. Another concern is the rumours that long-time executive chairman/CEO Peter Cowgill may be stepping down from day-to-day control and handing over to a new CEO. This could cause some short-term volatility as is common following upper management shake-ups.

I’m still very bullish on this retailer, and at around 916p now, I believe it still has some runway for growth as the economy reopens. 

Next

Considered to be one of the top UK reopening stocks to buy, the Next share price is on the rise. In the past year, the British retail firm has risen more than 70% from 4,796p to 8,320p. 

This top FTSE 100 retailer, like JD Sports, fared well in 2020, despite the pandemic. While its stores were closed, online sales surged, which saw revenue fall just 17% from £4.27bn to £3.53bn. What’s more, it managed to retain a pre-tax profit of £342m, despite increased Covid-19 costs. 

Next’s management’s bullish forecast for the coming year. It recently raised its central guidance for a full-year profit before tax by £20m to £720m. In fact, according to its first-quarter results, Next is already back to pre-pandemic levels of business, with a comprehensive expansion policy in place. This includes standalone premium beauty stores, deals with Laura Ashley and Victoria’s secret, more third-party brands added to its Label offer, and growing its e-commerce solution for external businesses.

Much like JD though, Next operates in a massively competitive market. It will need to invest heavily in its marketing and online retail just to stay ahead of the competition, all of which will impact its ability to generate meaningful profits.  

I am still bullish about Next though, and its brand power, which has seen it rise to the top of its market and remain in the FTSE 100.

The post 2 top FTSE 100 retail stocks I’d buy now appeared first on The Twelfth Magpie.

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Jamie Adams holds no position in any companies mentioned above. The Motley Fool UK owns shares of Next. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.