Boohoo Group (LSE: BOO) delivered a trading update this week, and the market reaction was somewhat muted. For the three months to May, the online fast-fashion retailer reported 32% revenue growth compared to the same period last year. But on the day of the announcement, the Boohoo share price barely moved.
As a Boohoo shareholder, I immediately liked the results. But why didn’t the market share my bullishness? Well, I quickly reminded myself of the unusual circumstances we find ourselves in.
The first three months of the year still happened in partial lockdown. That means the period doesn’t cover the full lifting of restrictions just yet. And judging by the enormous queues I saw at Primark when that reopened, people do seem keen to get back to the unpleasant crush of real stores.
Still, the latest sales figure does represent a 91% rise over two years, which I found very encouraging. UK sales grew 95% over two years, still providing the bulk of Boohoo’s income.
But US sales are growing rapidly, up 157% in the same two-year period. The total still came to a shade less than half of UK sales. And considering the potential size of the American market, I can see that possibly becoming the biggest driver of the Boohoo share price in the medium term.
Boohoo share price reaction
While the market might have reacted unenthusiastically, Boohoo shares had been gaining in anticipation. And as I write on Friday, the Boohoo share price is up 2.5% on the month, ahead of both the FTSE 100 and AIM. Still, I do see things holding it back. And one clue came in the form of another update delivered at the same time.
On Tuesday, alongside the trading update, Boohoo gave us what it called an ‘Update on Agenda for Change’. And that’s the kind of thing that would usually make me a bit twitchy from an investor’s perspective. I try hard to buy shares in companies that have got things right and don’t need change. Surely only troubled companies need an agenda don’t they?
This is nothing new, mind. It’s all about well-publicised issues with the Boohoo supply chain and the ethics thereof. The company now has “Responsible Sourcing and Ethical Trade teams” in place, which all sounds comforting. But I can see a drag on the Boohoo share price persisting until this change thing is all sorted out.
Firm developments
Thankfully, there are concrete developments behind it all. Boohoo “published in March its full UK manufacturing list with a commitment to publish its global supplier list in September of this year, and continues to review its entire manufacturing supplier base.” There were still lots of what I saw as “feel good” words too though.
The year ended February brought adjusted EPS of 8.67p. On the current Boohoo share price, that’s a P/E of around 38. That’s the lowest from Boohoo for some years. And I reckon there’s still plenty of future growth potential to make me want to buy more.
Still, I wouldn’t be surprised to see share price weakness until we’ve had a full post-Covid year. Oh, and until that change stuff concludes.
