boohoo Group – The Grief Continues For Online Fashion Group – Valuations And Profit Hopes On Hold For The Moment 

The news that the boohoo Group (LON:BOO) is going to shut it 1.1m sq.ft distribution facility in Elizabethtown, Pennsylvania in the States must be part of the ongoing reconstruction going on within the group as a whole. 

The US distribution centre only started operating in August last year and will cease to operate within the next two months.  

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The centre is operated by a third party and is on a property lease that the group will now sublet.  

That means that the changes to the online fashion business operations in the States will require quite a change to its distribution, which is expected to be brought back to the UK through its ‘state-of-the-art’ automated UK distribution centre in Sheffield. 

It is reported that the group remains excited about the opportunity in the US and has been developing wider routes-to-market strategies, the first of which is the recent launch of Nasty Gal in Nordstrom stores.  

The company is also said to be in advanced talks with major US brands with regard to new routes to market for other brands within the group. 

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Recently the corporate news from the quoted business has not been positive. 

It has advisers currently thrashing through various refinancing options for its massive £325m debt. 

There is a sale and leaseback possibility for its 44,000 sq.ft. office in London’s West End. 

The Soho property was only acquired in 2021, with the group paying some £72m for the building. 

And now it is believed that the group has to take a £80m write-down for its US costs, while the US inventory will be returned to the UK centre in Sheffield. 

Analyst Views 

Analyst Katie Cousins at Shore Capital Markets stated that: 

“We have previously noted the Group’s struggle to gain traction in the US despite investing to grow market share and improve delivery times for consumers. 

To us, the short life of the US warehouse (previously stated as a key pillar of growth for Boohoo) is concerning, highlighting a naivety of the American market, along with a waste of time and resources.” 

Rachel Birkett at Zeus Capital noted the decisive action to cease supplying US customers from its distribution centre in Pennsylvania, as management continue to look at ways to drive a more sustainable, profitable business whilst also broadening routes to market. 

Until the group’s Interim Results are announced next month, Zeus is leaving its forecasts unchanged at revenues for the year to end-February 2025 of £1,478m (£1,461m) with halved adjusted pre-tax losses of £15.3m (loss of £34.3m). 

For next year Birkett has estimates of £1,553m sales, and just £1.8m of losses. 

Over at Peel Hunt its analyst John Stevenson has placed the group ‘under review’ as it worries about the recovery at the online fast fashion retailer. 

Sensibly he has placed his ‘buy’ recommendation and target price of 75p ‘under review’ as he noted that US volumes had been ‘well below full-year 2022 levels’, pushing the group back to a ‘UK-led distribution model, which is significantly more profitable’. 

He commented that the company is still committed to the US, with its Pretty Little Things Autumn pop-up college tour back on. 

Stevenson suggests that while a US recovery is still on the agenda, utilising the most efficient distribution channel should improve US margins materially. 

In My View 

I wonder what Mike Ashley’s views are about the company, his Frasers Group (LON:FRAS) is its largest shareholder with 26.18% of the £355m valued equity and he has recently added to his stake. 

However, in the market there are currently Open Short Positions on some 5.44% of the group’s stock. 

With its shares, which were up to 43p last Christmas but are currently trading at 28p, I too would be a seller and not a buyer – certainly not until more news is released on just how the group is faring with sorting out its debts and getting back into profits again – could that be sometime next month? 

I am not holding my breath!

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