Barclays downgrades Boohoo as it loses confidence in brand’s profitability

Barclays has downgraded Boohoo from ‘equalweight’ to ‘underweight’ while slashing the price target from 135p to 85p.

The difficulties facing fashion ecommerce retailers emerging from the pandemic, including sustaining their elevated growth and stabilising margins were cited as one of the main reasons for the move.

According to the bank, Boohoo faces a “laundry list” of headwinds including global supply chain pressure, macro conditions, competition, ESG, and company-specific issues.

“FY22 earnings forecasts have come down in recent quarters, but calling the earnings inflection is tricky. Investors need to gauge the timing of the inflection and the medium-term trajectory,” Barclays said.

“Visibility remains low, making it nearly impossible for investors to get comfortable on either.”

READ MORE: Boohoo gifts employees shares worth £3,600 each

Barclays instead said it had “relatively higher confidence” in Zalando meeting both short-term numbers and medium-term targets.

“We see incremental risks at Boohoo and think things could get worse before they get better,” Barclays continued.

“We do not think it is fundamentally broken but expect growth to come at a higher cost than medium-term guidance implies.”

The bank also said that it preferred Asos’ chances of sustaining its pandemic-fuelled growth on a 12-month horizon given a smaller amount of operational headwinds, “albeit with limited confidence”.

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