The boohoo (LSE:BOO) share price plummeted this morning by double-digits following the release of its full-year results. This is just the latest in the series of slumps boohoo has endured recently. And over the last 12 months, the stock is down by nearly 80%!
So what was in this report that has investors spooked? And is this a buying opportunity for my portfolio or a sign to steer clear? Let’s explore.
The results
Despite what the sudden drop in share price would indicate, boohoo’s latest report did contain some encouraging news. The increased popularity of buying fashion online from the pandemic persists, even with brick and mortar stores opening once again.
Total revenue for its 2022 fiscal year ending February grew by 14% year-on-year, reaching £1,982.8m. Not only is this ahead of 2019 levels by around 61%, but the growth also appears to be primarily organic.
Looking deeper into the numbers, the jump in sales is mainly attributable to a 10% boost in the active customer pool, which now stands at 20m.
Meanwhile, management has successfully launched new UK distribution centres to meet increasing demand. And its warehouse in Sheffield is currently being fitted out with new automation technology that’s expected to be ready by September.
Once the work is completed, along with other operational initiatives and warehouse expansions, boohoo will have the capacity to support up to an estimated £4bn of annual net sales. Needless to say, this is all rather positive. So it begs the question, why is the boohoo share price crashing on the back of this report?
What’s going on with the boohoo share price?
While top-line performance is positive, the same cannot be said for earnings. Adjusted pre-tax profits were basically slashed in half, from £149.9m to £82.5m. What happened?
It seems the supply chain disruptions and labour shortages are hitting boohoo hard. The group incurred a £60m increase in shipping expenses and other pandemic-related headwinds.
Management has begun restructuring its supply chain to source products from near-shore markets to mitigate this impact. However, this move isn’t working as well as expected. And with global disruptions continuing to plague most industries, these increased expenses are unlikely to disappear anytime soon.
The disruptions also create longer lead times when it comes to replenishing inventory. This may actually grant a slight benefit as it provides greater flexibility for the firm to adjust its product catalogue in line with shifting consumer tastes. However, it also means the risk of product unavailability is becoming more elevated, potentially leading to lost sales.
With that in mind, I’m not surprised to see the boohoo share price take a beating.
Time to buy?
Despite the valid concerns being expressed by investors, I think the stock market may have overreacted. As frustrating as the supply chain disruptions are, it’s ultimately a short-term problem. Meanwhile, continued growth in revenue, even against tough comparables, seems to indicate management’s long-term strategy is working. At least, that’s what I think.
Therefore, personally, I see today’s tumble as a buying opportunity for my portfolio.
