The boohoo share price plunged to below 70p after it reported a 28% fall in earnings versus last year on Wednesday. After a string of disappointing updates, are the shares far too cheap or should I avoid them completely?
Let’s consider my options.
Has the boohoo share price fallen too far?
After today’s slump, the Boohoo share price is now down by a whopping 80% over the past year. That’s the second worst result in the Aim 100 index. It’s a far cry from previous years. For instance, in the five years from 2015, shares of this fast-fashion group soared by 650%.
Could it repeat this performance? I’m not so sure. Much has changed in past few years. boohoo isn’t growing as fast as it used to.
Growth is being impacted by several factors. Buyers are returning clothes faster than the company expected and ahead of pre-pandemic levels.
Covid-related lockdowns in several of its markets continued to dampen sales throughout the year.
And lastly, supply-chain issues resulted in much longer delivery times. That’s the last thing I’d want to hear from a ‘fast-fashion’ company.
As with many companies that rely on moving physical goods around the world, boohoo has faced higher shipping costs. It’s not alone in this issue, but it continues to be a key factor for company profit margins.
The poor performance came despite relaunching four acquired brands. It resulted in higher launch and marketing costs. That said, the rewards might appear in later years as the brands scale.
Not all doom and gloom
Despite the headwinds the company has faced, it’s not all doom and gloom for boohoo. Sales rose by 14% to £1.98bn, and its active customers increased by 10% to 20m.
The business remains strong in the UK and two new distribution centres here should help relieve supply chain issues. It’s expecting to complete another UK warehouse later this year, and it announced plans for a US distribution centre in 2023.
boohoo is flagging pandemic-related challenges to continue hampering its progress. I think that’s prudent. To help relieve supply chain issues, the group will aim to reduce lead times by sourcing from locations closer to home.
Should I buy the shares?
With the boohoo share price at levels close to levels not seen since 2016, it’s tempting to buy. Much of the negative news and outlook could be in the price. And taking a long-term view, the shares could offer excellent value.
But there are so many headwinds for Boohoo right now. In addition to the supply-chain issues that are hampering its business model, there’s stiff competition from ASOS and Shein. Perhaps the business is no longer as strong and appealing as it used to be.
For that reason, I won’t be buying Boohoo shares today. That said, I’ll add it to my watchlist and will see how the business performs over the coming year.