Huge miss for Boohoo earnings
Boohoo’s interim results this morning came in far worse than anticipated.
Revenue fell 10% to £882.4 million as the cost-of-living crisis starts to bite, prompting consumers to pull back on spending. Adjusted Ebitda – its headline measure - plunged 58% to £35.5 million as weaker demand and inflationary pressure on costs continued to hit its margin. That compared to the 2.2% topline fall and the 47% drop in earnings forecast by analysts.
The weaker outlook comes after online retail sales dropped 6% in August, with clothing one of the worst performing sectors during the month. The brakes appear to have been applied to non-essential spending as consumers are forced to stretch their pay cheques further. The results come just days after the Sunday Times said Boohoo had started cancelling orders from suppliers in response to softer demand. This comes at an unfortunate time for Boohoo and other retailers that are seeing their margins hammered from every angle.
It is also worth flagging that the shift in demand comes following an explosion in sales in recent years. Sales were still some 56% above pre-pandemic levels in the first half and basket sizes and order frequency are both higher than they were in 2019.
Boohoo cuts outlook as consumers tighten their belts
Confidence for the remainder of the year has also been shattered. Boohoo had said the second half would be better than the first and allow sales to grow by low single-digits over the full year, but warned today that sales will continue to fall for the remainder of 2022. It also tightened and lowered its adjusted Ebitda margin expectations to 3% to 5% from the previous 4% to 7%.
That sets a tough task for new chief financial officer Shaun McCabe, who will take up his new role on October 3 to replace Neil Catto, who is reverting to an executive director role.
Boohoo is the most shorted UK stock
Boohoo is the most shorted stock in the UK, according to ShortTracker+, which says 10% of its shares are in the hands of short sellers based on disclosed positions. That makes it the most shorted stock by some way, although it is worth flagging that its rival ASOS – which warned earlier this month that profit would be at the bottom-end of expectations following a slump in sales during August - also features in the top 5 to demonstrate that the mood is sour across the wider online clothing sector. The disappointing set of results and weaker outlook today could encourage more bets against Boohoo, which had already risen ahead of today’s earnings.
Where next for the Boohoo share price?
Boohoo shares dropped to as low as 30p this morning, marking its lowest level in seven years before bouncing back and recovering some of those losses. It is currently trading down over 11% at 32.64p.
There are a series of downside targets to watch should the stock remain under pressure. The 30p threshold held strong during August and September 2015 and is likely to prove a key psychological level. A drop below here opens the door to the 28p level of support that held firm throughout the May, July and August 2015 before the 25.5p floor that surfaced throughout the second quarter of 2015 comes back into play.
The steep fall today has pushed the RSI into oversold territory, providing hope the initial 30p floor will prove attractive enough to attract buyers back into the market. The first upside goal is to recapture 39p and then the September peak above 46p. From here, it can bring the 52p level of support seen in June and July back into the crosshairs, in-line with the 50-day moving average.
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