Why Boohoo’s shares have dropped despite a 41% rise in sales

Boohoo saw its shares dip around seven per cent today despite posting runaway sales growth of 41 per cent last year.

In its first full-year financial update since purchasing Debenhams and three Arcadia brands in rescue deals last year, the online fashion giant said revenues increased to £1.74 billion, up from £1.23 billion a year earlier.

While profits also soared, seeing EBITDA jump 37 per cent to £173.6 million, investors reacted cautiously following what has been a rollercoaster of a year for Boohoo.

Shares dipped from a high of 344p per share yesterday to around 320 per share throughout today, seemingly signifying an end to the explosive share growth Boohoo has enjoyed over the past five years, growing 585 per cent since 2016.

According to experts from across the industry, this disparity if due to two key reasons.

The first of which is Boohoo’s ongoing controversy surrounding its supply chain, which has seen shares struggle to reach last years highs throughout the year despite runaway sales.

“Boohoo’s supply chain has been a defining characteristic of the company over the last 12 months,” Three Bridge’s senior analyst Harry Barnick said.

“It is both a strength, allowing Boohoo to quickly hoover up the latest TikTok styles, and a weakness, causing brand damage due to controversy around working conditions in the UK and abroad.”

“Boohoo now has the complex job of cleaning up its global manufacturing practises whilst ensuring it retains its competitive edge as the fastest and cheapest player in the market. It will need to be whiter than white in the medium-term if it is to avoid being permanently sullied by questions around its operations.”

Jefferies equity analyst Andrew Wade said that Boohoo has made “outstanding” progress on addressing its supply chain issues, seeing the financial giant reiterating its “Buy” recommendation.

READ MORE: Boohoo sales & profits soar after tumultuous year

He said: “In our view, Boohoo has made outstanding progress addressing its UK supply chain issues – investing in capability and personnel, mapping and forensically auditing the entire chain, consolidating the supply base, and cutting sub-contracting.

“Moreover, progress is already underway to similarly audit the overseas supply chain, while boohoo’s wide-ranging sustainability strategy (UP.FRONT) has been laid out clearly. We are encouraged by Boohoo’s commitment and achievements in addressing the challenges of the last year, and we believe investors can be increasingly confident that these issues are in the past.”

Others raised concerns that Boohoo would struggle to maintain the lockdown-driven growth throughout the coming months, reflected in its own relatively lacklustre growth expectations of 25 per cent.

Hargreaves Lansdown’s senior investment and markets analyst Susannah Streeter commented: “As the retail world adjusts to a new normal, with competitors upping their digital game, and high streets re-opening around the world, this level of performance will be hugely difficult to match.

“But even so Boohoo still expect revenue growth for the full year to be at an impressive around 25 per cent, with five per cent of this coming from newly acquired brands.”

“Boohoo is now a fashion powerhouse, and investment in scaling the platform is expected to keep paying off, with even higher margins expected in the second half of the year. But the catwalk isn’t completely clear, with hurdles of uncertainty ahead.”

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