No wonder boohoo (LSE: BOO) has the name it does. I almost feel like crying myself as an investor in the beleaguered online fashion retailer. The boohoo share price has fallen 24% so far this year. That is bad enough.
But over five years, things look even worse – far worse. The shares are down 90%. In other words, I can now buy 10 boohoo shares for the amount I would have paid for a single one just five years ago.
What has gone wrong – and does the current share price represent a tremendous potential bargain or a massive red flag?
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A big shareholder, with a big voice
Enter Mike Ashley, a long-time retail entrepreneur whose brash approach elicits mixed reactions in the City.
The company he spent decades building up, Frasers Group, has released an open letter to boohoo’s shareholders. It laments boohoo’s “abysmal trading performance and share price collapse” and asserts, “the [boohoo] Board has lost its ability to manage boohoo’s business and investments“.
Ashley is no shrinking violet. But a critical point here is that he has put his money where his mouth is. Frasers is boohoo’s largest shareholder, owning around 27% of the company’s shares.
Not only does the letter make valid points, in my view, but it also contains some revelations that as a small boohoo shareholder myself I find concerning. Specifically I was very troubled by Frasers’ claim that boohoo has shown “a complete failure to meaningfully engage” with its largest shareholder.
I do not see that as being in the interest of Frasers, the rest of boohoo’s shareholders – or the share price.
The drums are beating
Whether or not boohoo has been willing to engage with Frasers thus far, I think the time has come when we will have to see a shift in attitudes. Boohoo’s chief executive resigned last week (naturally Frasers sees Mr Ashley as the right choice for this role) and, as the letter points out, business performance has been woeful.
For a while, boohoo has basically said that it is engineering a turnaround based partly on cutting costs, in the hope that this will return it to profit.
That could work: it has a stable of strong brands, a large customer base and has invested heavily in recent years in building its US operation in a way that could position it for long-term success.
Breaking point
But so far, there has been a lot of talk and precious few positive business results to show for it. While boohoo has consistently said it will take time for the results to show through, Frasers’ patience has worn thin.
I expect many other shareholders are also harbouring doubts about whether under its current board and strategy boohoo can ever return to anything like its previous performance.
If things keep sliding, I reckon the boohoo share price could continue falling even further. Something needs to give.
On the plus side, either a Frasers bid or improved business performance thanks to Frasers’ pressure (and potentially constructive strategic input) could help push the boohoo share price up. So for now, I continue to hold.
