After a recent, review, here’s why I’ve sold out:
- The company doesn’t have a significant moat or pricing power. There isn’t the sort of brand loyalty with Boohoo that comes with the likes of Nike or Under Armour. Online reviews of Boohoo are not full of loyal zealots.
- Boohoo has strong competition from the likes of Asos, Shein and H&M, but it doesn’t have better margins or anything to suggest it’s a superior company.
- CEO John Lyttle joined Boohoo in 2019 and has since seen the share price rise to 412p during the peak of covid, before dropping down to 35p. After a £91m loss, the board approved a bonus of 100% of his salary – this just smacks of reward for failure and poor corporate governance. Given John’s Lyttle’s experience in Primark, a high street retailer, I don’t see how that’s going to be a major differentiator when building an e-commerce retailer.
Boohoo boss takes home £650,000 bonus despite retailer sinking into a loss | The Independent - The shares are near an all time low and yet there’s little insider trading or buying back stock. If the executive team really believe the turnaround story, why aren’t they buying?
- Boohoo has had a historical high P/E (as high as a P/E of 54 at times!)
- Debt has grown from £534m to £825m in a single year. Debt to equity is around 80%. We’re talking lots of debt in an area of high interest rates!
- The company’s recent trading update focused on efficiency and scalability of the US infrastructure, with the build out of Boohoo distribution centres. However there are little signs of success and conquering the US market won’t be easy. The majority of Boohoo’s revenue comes from the UK, which is particularly friendly to fast fashion (Celtic & Co.).
- The company is losing money at the moment due to high inflation, weaker consumer demand and issues with returns. Profitability may be on the horizon, but I doubt see a quick high positive cash flow turnaround likely.
Over the next 5 years, I see little chance of Boohoo hitting the 300p or 400p mark, a doubling or halving of the current share price is more realistic.