I was originally going to headline this article What’s gone wrong with the boohoo (LSE: BOO) share price, but then I had a shock. After years of misery, the AIM-traded stock is up by 17.58% in a week. What’s suddenly gone right?
Boohoo’s shares peaked during the pandemic as bored shoppers kept up with the latest lockdown fashions online. Back then, its full-year results to 28 February, 2021, showed revenues jumping 41% to £1.75bn and gross profit up by a similar percentage to £945.2m. It ended the year with net cash of £276m.
Watch that man
While the UK still generated 39% of revenues it was flying in the US, led by brands PrettyLittleThing, Karen Millen and BoohooMAN. Then the fun went out of fast fashion as the high street reopened and modern slavery accusations flew.
boohoo’s stock has crashed 86.11% over two years. Over 12 months, it’s down 3.96%, but now it’s rocketing and guess who’s behind it?
Controversial retail tycoon Mike Ashley, of course. In June, his retail conglomerate Frasers Group (LSE: FRAS) bought a 22m stake in boohoo for £22m, calling it “an attractive proposition to us with its laser focus on young female consumers”. Frasers said it also brings synergies with brands I Saw It First and Missguided.
Then last week, on Thursday 31 August, it hiked its position from 7.8% to 9.1%, then lifted it to 10.4% on Friday. Hence the share price spike.
On a shopping spree
Some people take pleasure in scorning the former Newcastle United owner but he delights in proving them wrong. Frasers is the third best performing FTSE 100 stock over the last five years, returning 111.68%. However, it’s up just 1% over the last year.
Frasers, which owns House of Fraser, Sports Direct and Flannels, also topped its holding in online fashion firm ASOS on Friday from 19.3% to 19.8%. ASOS shares are up 15.28% over the last week (but down 34.1% in a year).
Ashley now holds voting rights in boohoo but remains a minority shareholder. We don’t know whether he wants to take it over and he’s a long way from having to tell us, but ASOS probably shows us the direction of travel. Frasers is also buying Currys and electrical goods specialist AO World. It holds shares in high street fashion giant Next too.
There are strong arguments in favour of buying boohoo shares while they’re cheap, markets are volatile and shoppers are under the cosh.
Ashley is all over the high street
It boasts strong brands, a large customer base and impressive infrastructure. It slumped to a pre-tax loss of £90.7m in full-year 2023 though, while shopper returns, low-cost rivals and supply chain problems weigh heavily.
Website visitors fell 10% to 18m after lockdown but they’re still up 29% over three years so it has retained some pandemic custom. The board does expects profits to rise in 2024 as it cuts costs and inflation eases.
boohoo is a risky buy, but it did end last year with net cash of £5.9m, when markets expected debt of £55m. My biggest worry is that it’s forced to raise more capital, which would dilute any stake I bought today. Yet with Ashley marauding it’s hard to resist and if I’m feeling brave one morning, I might just buy it.