Boohoo share price remained under intense pressure this year as its attempts to bounce back have found substantial resistance in the past few years. It dropped to 29.20p, down from last month’s high of 39.45p. So, will Boohoo’s underperformance continue this year?
Boohoo’s business has struggled for years
Boohoo, the parent company of Debenhams, PrettyLittleThing, Nasty Gal, and Karen Mille, has been one of the worst-performing British companies since 2021.
The company’s business started to implode during the pandemic when media reports about its working conditions in Lancaster emerged.
Boohoo has solved some of those issues, but its challenges have continued. Its sales growth ended, and the company experienced a loss.
At the same time, the firm experienced higher customer returns, which have continued to affect its profitability. Competition from companies like Temu and Shein has also hurt its business, while soft consumer spending has contributed.
Boohoo’s underperformance is notable because other British retailers, such as Next PLC, Tesco, and Marks and Spencer, have performed well. Similarly, traditional fast-fashion companies like Inditex and H&M have performed modestly well.
Boohoo’s management has now moved to assess strategic alternatives for the company. One option being considered is to spin off some of its businesses. Spin-offs are often seen as better options for struggling companies because they help them focus on the most profitable businesses.
Another option, which management has not mentioned, is selling the company now that its turnaround measures are not working. A potential deal would be to sell to Mike Ashley’s Frasers Group. Ashley has become one of the company’s biggest shareholders and is seen as a potential acquirer.
He recently lost a vote to become a board member and the company’s CEO. As such, he is likely to launch an unsolicited offer for the firm in the next few months since he sees the company being undervalued.
Revenue and profitability slowdown
The most recent financial results showed that its business struggled in the last financial year. Its gross merchandise value dropped by 13% to £1.8 billion, while revenue fell by 17% to £1.46 billion.
Its business has continued to experience substantial losses in the past few years. It made an annual loss of £159 million before tax, up from £90.7 million in the previous financial year.
Management has continued to blame the macro-environment for affecting consumer spending. As such, the company may benefit if the Bank of England continues cutting interest rates this year.
Also, there are signs that traffic to its website is growing, which could lead to more revenue. According to SimilarWeb, traffic rose by 8.67% to 11.8 million in December.
Additionally, the management is working to slash costs, including cutting administrative costs by 20%.
Boohoo share price analysis
The weekly chart shows that the BOO stock price has gone sideways in the past few years, with attempts to rebound facing substantial resistance. It has found a support at $26.25, where it failed to drop below since 2023.
This consolidation could be a sign of potential accumulation, which may lead to a strong rebound in the next few months. It has remained at the 50-week and 25-week moving averages, while the Average True Range (ATR) has fallen.
Therefore, the stock will likely bounce back in the coming months, possibly retesting the resistance point at 43.15p. However, the risk is that it may remain under pressure in the next few months as it has in the past two years.
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