The Boohoo share price is up almost 7% today, recovering a portion of the 12.4% loss that saw it slump to 65.92p on Wednesday morning. However, the company’s market capitalisation is still over three quarters down from where it was a year ago after a rapid fall from grace from a share price high of 413p set on June 19 2020.
Boohoo, an online-only fast-fashion retailer, was one of the big winners of the lockdown conditions imposed during the Covid-19 pandemic. However, a scandal over illegal working conditions at Leicester factories where some of its garments were manufactured, supply chain woes and new competition from Chinese rival Shein have seen the company’s valuation plunge since. Its share price is over 80% down on its early summer 2020 record high.
Yesterday’s 12.4% drop in valuation came after Boohoo told investors higher shipping costs to transport garments from factories to its warehouses would cost it £22 million this year. Even worse news was that it is expected to cost an extra £38 billion to get those garments from warehouses to customers. The higher costs led the company to cut its guidance for the year.
Boohoo’s American business is doing particularly badly as a result of delivery delays seeing the company lose customers to rivals able to get them goods faster. Boohoo chief executive John Lyttle commented:
“At the moment our younger shopper is having to wait two weekends for an order, which is too long for them.”
The poor performance of international units means Boohoo now expects no growth over the first half of the year and less than 5% over the second six months. It has also reduced its guidance for its adjusted earnings margin to between 4% and 7% from between 6.3% and 10%.
Analysts at the broker Numis calculate this will mean pre-tax profits of about £50 million, 39% off market expectations before yesterday’s announcement. Boohoo hopes to offset rising overheads with a new automated warehouse in Sheffield and a new distribution centre in the USA. However, neither will come online before next year.
Boohoo’s financial year to the end of February saw its pre-tax profits slump by 95% to £7.7 million from £124.7 million a year earlier. Overall sales were up 14% to £1.98 billion with UK sales up 27%, helped along by acquisitions. U.S. sales rose by only 4% and were down 10% across other international markets.
Lyttle said the focus of the business is currently on retaining its market share and that it had spent 11.1% of net sales, or £219 million, on marketing last year to that end. He concluded:
“We are confident about getting our share price back up. This is cyclical and we have got a great future ahead.”