The writing has been on the wall for some months now – boohoo Group (LON:BOO) has what could be terminal problems unless something really kicks its Board into proper remedial action.
Just standing back and agreeing to some fairly stringent and expensive funding terms as it desperately attempts to straighten its balance sheet could give the group even more problems.
The Business
Set up in Manchester in 2006, boohoo group describes itself as a fashion forward, inclusive and innovative business.
It believes that its brands are complementary, vibrant and scalable, delivering inspirational, on-trend fashion to group’s customers 24 hours a day, seven days a week.
The group’s five diverse core brands – boohoo, boohooMAN, PrettyLittleThing, Karen Millen and Debenhams – enable it to serve a broad customer base, globally, with a primary focus on the UK and US markets.
Since its acquisition in 2021, Debenhams has been transformed from a retailer into a digital marketplace, with a capital-light, low-risk operating model and a focus on fashion, beauty, as well as home.
The Background
We have all heard about the ‘ups’ of the fashion group, which have been well-publicised in almost every UK newspaper and investment website.
Over the last few years, we have read about ‘slave labour’ production lines at various of the clothing group’s suppliers, there was even a Competition and Markets Authority investigation into whether the group had breached any consumer protection laws
We have also seen tittle-tattle of various of the boohoo glitterati, flying here and there and everywhere on very expensive trips, of driving flashy cars, or enjoying multi-million pound family ceremonies – all this was happening as the online company’s profits were dwindling fast and while the luxury spending appeared to increase.
Admittedly times have been very challenging over the last year or so, with the group dropping some 13% on its gross merchandise values to £1.81bn (£2.09bn) in the year to end February this year, while its statutory pre-tax loss increased to a minus £159.9m (loss £90.7m).
In late May proposed option awards for three of the group’s main directors, over millions of shares, rapidly faced investor disapproval and were later withdrawn.
During the summer the group put one of its office buildings up for sale, based right in Soho in London’s West End.
Just last month the group declared, as part of its required cost-slashing measures, that it was changing its US operations, cutting out its distribution centre in Pennsylvania, and switching product delivery to its US customers directly from its Sheffield centre.
A week ago, the company updated that it had signed a £222m debt refinancing package, together with the declared undertaking of ‘a review of options for each division to unlock and maximise shareholder value’, it also announced that its CEO was stepping down.
Tally Ho The Frasers
Then, yesterday morning, the group confirmed that it had received letters and accompanying notices from Frasers Group, the online fashion group’s largest shareholder with 27% of the equity, demanding that Mike Ashley be appointed CEO and that Mike Lennon also be appointed a Director.
Just a day after Ashley and Frasers had stepped back from proceeding with the proposed £111m bid for the Mulberry Group, it published an Open Letter to the Board of the online retailer, detailing the Board Positions being sought.
In that letter, Frasers did not hold back; it pulled no punches; Ashley called Boohoo’s trading performance “abysmal” and considered that there had been “long-term mismanagement.”
It declared that the company’s recently announced debt refinancing was “wholly unsatisfactory” and created an “appalling outcome for shareholders“, which showed that the board “has lost its ability to manage boohoo’s business and investments“.
Accordingly, Frasers is requisitioning a general meeting of Boohoo to appoint Mike Ashley as a director and CEO of Boohoo and Mike Lennon as a director of Boohoo, to take effect without delay.
It stated that Frasers firmly believes that these appointments are in the best interests of boohoo, its shareholders and its stakeholders.
While also claiming that the Board appointments proposed by Frasers are now the only way to set a new course for boohoo’s future.
Market Reaction
Yesterday the shares of boohoo Group, on the back of a tripled dealing volume at 9.9m shares traded, closed 4% higher at 28.50p, valuing the group at £362m.
Frasers Group, valued at £3.61bn, saw its shares holding fairly steady at 800p.
Response To Frasers
This morning boohoo has responded to the Fraser’s Open Letter, by noting that Ashley is a 73% shareholder in Frasers; in addition, Frasers owns a 23.6% stake in ASOS, and that both Frasers and ASOS operate in similar markets to boohoo.
It declared that Frasers’ characterisation of Boohoo’s recent debt refinancing is inaccurate and unfair, considering that the refinancing provides certainty for the company around its future requirements and is supported by its existing group of high street banks.
The company stated that it will publish its interim results in November.
Early prices show boohoo at 28.35p and Frasers down 8.5p to 791.50p.
