The Boohoo (LSE:BOO) share price has been choppy over the past year. The fast fashion retailer has seen equally fast swings in sentiment from investors. The share price is down 16% over a one-year period, although up 4% over the past six months. With first-quarter results released earlier this week, could the direction for Boohoo shares be higher?
In the three months to the end of May, Boohoo saw a 32% increase in revenue when compared to the same period last year. This growth was driven by the UK and USA, with other markets showing a decrease.
It spent money on some big investments with an outlay of £143.5 million. This was mainly around new offices and distribution centres. Although this decreased the cash balance, I’m not too concerned. Investing in infrastructure like this is a long-term benefit for the company, and for Boohoo shares in general.
The other interesting element in its results was the report by Sir Brian Leveson on its supply chain initiative, Agenda for Change. This is specifically geared around the issues thrown up last year about low pay and unsafe working conditions in Leicester. It included some positive developments, but it’s too early to assess the results as this is a multi-year project. Yet it’s clear that Boohoo is using this as another way of gauging performance, aside from finances.
Reasons to be positive
I think Boohoo shares could accelerate higher this summer and beyond as organic consumer demand rises. The easing of lockdown restrictions will likely see many looking to refresh their wardrobes as socialising and events become more frequent. The segment of the fashion industry that Boohoo operates in should allow it to capture this demand. After all, it’s mostly geared to a younger consumer who’s keen to socialise.
Further, the integration of brands such as Dorothy Perkins and Burton from the failed Arcadia empire is already helping revenue. Looking forward, Boohoo shares should benefit from this increased diversification.
Caution with Boohoo shares
There are some risks that I see for Boohoo shares. The business has stated that it’s committed to changing and improving standards within the company and with suppliers. But this isn’t something that can be fixed overnight. There could be more damaging practices that will come to light as the spotlight is shone on it. Ultimately, this could hamper the reputation of Boohoo and see a fall in the share price.
Another risk is that Boohoo might actually lose out on some custom as customers decide to trade up to other brands. Over the past year, the amount saved by people in the UK has shot up. Now that people are feeling more confident about the state of the economy, it should encourage spending. Even for myself, my lack of purchases over the past year mean that now I’m happier to buy something a little bit more expensive now.
Overall, I do think the benefits outweigh the risks for Boohoo shares, and I think they will rise this summer and beyond. However, I don’t see the firm as a star buy for my portfolio, and I think there are better opportunities elsewhere.
Jonathansmith1 has no position in any shares mentioned. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.