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boohoo (LSE: BOO) shares are falling today after the company delivered its Christmas trading update. That’s because the main news was not good. The online fast-fashion retailer said the group’s revenue was down 11% in the four months to the end of December.
This comes after the stock rose 30% in the last month leading up to the company’s update. Investors had probably bid the stock higher in anticipation of some positive trade news. Now that none are coming, the stock is back down.
It’s been a miserable couple of years for boohoo shareholders. Growth stocks are down 86% in just two years. Does boohoo stock now represent a potential buying opportunity for my portfolio? We are going to explore.
commercial update
For the four months to December 31, the group revealed that its turnover had fallen 11% to £637.7m from the same period last year (£714.5m). Sales decreased in all regions. Management confirmed that this means revenue for the current fiscal year is expected to decline by 12%.
Four months until December 31, 2022
Income by region
Financial year 2023
Year 2022
Change
United Kingdom
£400 million
£451 million
-eleven%
rest of europe
£73 million
£79.9 million
-8%
USA
£128 million
£145.8 million
-12%
Rest of the world
£34.5 million
£37.8 million
-9%
assembly problems
Worryingly, there was a 12% decline in sales year-over-year in the US, once a major growth market for the company. This suggests the group is likely losing market share to Chinese rival Shein, which was the most downloaded app in the US in the fashion and beauty app segment in 2022.
To be fair, most of the numbers were in line with previous guidance. And adjusted EBITDA is expected to be in line with market expectations, with an adjusted margin of around 3.5%.
In general, it only confirmed what most already knew, and what is included in the share price. That is, the company continues to fight on several fronts.
The main one of its problems is inflation. It’s a huge headache as it increases input costs at the company, but it also limits how much their young customers have to spend. And boohoo doesn’t have much pricing power, mainly because fast fashion’s selling point is its low cost.
the story continues
After years of growth and rising profits, boohoo is now experiencing declining revenue and has turned into a loss. Investors are probably not particularly interested in such a combination.
Will I buy the shares?
One of the main concerns I have with fast fashion in general is its sustainability. The industry has a significant environmental impact. According to the United Nations Environment Program (UNEP), fast fashion is the second largest consumer of water and is responsible for around 10% of global carbon emissions.
This impact has been largely overlooked by consumers until now. But I think there is a chance that younger consumers (boohoo’s core market) may judge these issues more harshly in the future.
Of course I can be wrong here. The immense popularity of Shein, the current king of global fast fashion, seems to indicate otherwise.
Overall though, I think there are too many risks associated with boohoo stock for me to buy the stock.
The post Earnings: why boohoo stocks are still out of date appeared first on The Motley Fool UK.
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Ben McPoland does not have a position in any of the listed stocks. The Motley Fool UK has recommended Boohoo Group Plc and Nike. Opinions expressed about the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make on our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that Considering a wide range of ideas makes us better investors.
Motley Fool UK 2023
Source: news.google.com