boohoo (LSE:BOO) shareholders will be happy to say goodbye to 2022. In a tricky trading environment, the boohoo share price has been stuck in a constant downtrend this year. It’s down 69% year to date and over a full 12 months.
Investors in the business who bought shares half a decade ago are nursing an eye-watering 81% loss today. Nonetheless, despite its poor stock market performance, the online fashion outfit significantly expanded its brand portfolio in recent years.
So, let’s explore what happened to boohoo shares and what the New Year could bring.
Negative returns
The fashion group’s troubles trace back to 2020 allegations concerning poor labour practices in its supply chain. The threat of a US import ban has plagued the business ever since, damaging the investment outlook.
This year, it started production at a new manufacturing hub in Leicester in an attempt to remedy past failings. Unfortunately, this news looks like a minor highlight in what has otherwise been a tough year. The latest half-year financial results were poor and boohoo’s share price has tumbled to 36p today.
For the six months to September, group sales slumped 10%. In addition, group profit declined 13% and the firm’s cash position has transformed. At the same point in the last financial year, boohoo was sitting on a £98m cash pile. Today, it’s in net debt to the tune of £10m.
The retailer puts the weak numbers down to an expected increase in the returns rate as well as a softening demand backdrop in the UK. In response, one of its measures has been the introduction of a £1.99 return fee. This came a couple of months after Spanish clothing chain Zara announced a similar policy.
In my view, this is unlikely to be sufficient to inspire confidence among investors. I think the company needs better and bolder ideas to revitalise the business in 2023. That’s especially so as Chinese rival Shein continues to grab market share by being faster with trends and cheaper than boohoo.
A big brand portfolio
I can see one particular silver lining — boohoo’s deep intellectual property strength. The company acquired a variety of brands during the pandemic. For instance, Dorothy Perkins and Debenhams now feature among the group’s 13 market-leading clothing labels.
We [have] developed a broader portfolio of brands and a significantly larger target addressable market with 500m potential customers in key markets.
boohoo Annual Report 2022
Brand recognition is critical in fashion and I’m encouraged by boohoo’s efforts in this area. Indeed, the combination of poor financials and boohoo’s trademark strength makes the company a possible takeover target, in my view.
Admittedly, the precise impact of any potential acquisition is difficult to predict. However, there’s a chance the boohoo share price could increase if a buyer bought at a premium.
Where’s next for boohoo shares?
The upside potential for boohoo from a takeover next year makes the stock look tempting at today’s price. However, it’s not tempting enough for me.
I’m worried about the health of the business. Any positive momentum in boohoo shares next year is far from guaranteed. There’s a real chance investors could face further pain in a recession.
Accordingly, I wouldn’t buy boohoo shares today. For me, there are too many big risks facing the retailer at present.
