Boohoo Group plc (BOO) Ordinary 1p

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Boohoo has announced that Dan Finley, current CEO of Debenhams, will become CEO of Boohoo with immediate effect.

Finley previously spent a decade as Group Multi Channel Director at JD Sports, where he delivered “unprecedented digital growth”.

Finley then became CEO of Debenhams in January 2022, following Boohoo’s £55mn acquisition of the brand. Under his leadership, Debenhams has been transformed from a “failed department store” to a “highly profitable marketplace”.

Former CEO, John Lyttle, will remain available to Finley to help ensure a smooth transition.

The shares rose 3.9% in early trading.

Our view

Less than two weeks after former CEO John Lyttle announced he was stepping down, Boohoo has its replacement. Dan Finley moves into the hot seat with immediate effect and, given he was already the head of Boohoo-owned Debenhams, the transition should be fairly smooth.

The new boss has a tough job ahead of him as group revenue and profits both fell at double-digit rates in the first half. It’s hoped that Finley’s track record of driving online growth can help resurrect the business, but it’s a competitive space and there are no guarantees.

The group’s looking at ways to restructure the business. The main option being considered is spinning off one or more of its core divisions in an attempt to unlock shareholder value. But we’re not convinced that’s the answer. Breathing life back into its young fashion brands (PrettyLittleThing, boohoo, boohooMAN) should be the main focus in our eyes. Improvements here would be far more likely to move the dial.

In terms of actual business performance, customer numbers continued to fall last year. With key customer performance metrics trending in the wrong direction too, it doesn’t appear that Boohoo’s initiatives are having the desired impact.

Some of the issues outside of the group's direct control have started to abate - supply chains are unclogging, freight costs are falling, and overall goods cost inflation is easing. From these, Boohoo's identified more than £125mn of cost savings that it expects to deliver this financial year.

But these savings are being reinvested into keeping prices low, which is the core identity of the brand. While we commend the intention behind this, it's hurting the profitability. Unless Boohoo regains control over falling customer numbers and volumes, it's going to be very hard to drive revenue and profits back in the right direction.

There are also Boohoo-specific problems. After investing heavily in expanding into the US and setting up a distribution network there, the plug has been pulled. That looks set to hurt cash flows and the balance sheet as Boohoo winds up operations, further adding to its near-term problems. US customers will now be served from a warehouse in Sheffield, meaning delivery times and costs are likely to be hefty for overseas customers.

For those prepared to accept more risk, Boohoo's longer-term proposition shows a glimmer of hope. Its model allows it to react to changing trends and demand levels extremely quickly, ultimately helping sales and margins when volumes are in full flow. This is what keeps prices so low - it's a unique selling point. Continually nailing its proposition and bringing customers back to its site is what’s needed, but it’s a tough ask in a competitive market.

Overall, our concerns about Boohoo haven’t disappeared. With key customer metrics and profits trending in the wrong direction, major challenges lie ahead. This has been reflected in the group's valuation, which has come down significantly over the last few years. With so much uncertainty ahead, investors should expect a bumpy ride.

Environmental, social and governance (ESG) risk

The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.

According to Sustainalytics, Boohoo’s management of ESG risk is average.

The company's disclosure is poor, signalling inadequate accountability to investors and the public. It has some initiatives to manage risks related to material ESG issues, however, the company lacks policies and programmes in key areas. Furthermore, the company has been involved in numerous significant ESG-related controversies.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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