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Since first-half results on 27 November, accompanied by a turnaround scheme presentation, the Boohoo Group (LSE: DEBS) share price has jumped 98%. It more than doubled at one point, but after peaking on 5 December the shares have fallen back around 20%.
So what does it look like now the excitement has settled a bit? Is is the start of a long-awaited climb back to health, or are investors jumping in too soon?
Following years of disappointing results, the figures for the first six months of the year showed some impressive progress. Revenue did continue to decline. But slashing operating costs helped stem the company’s losses.
Boohoo’s statutory loss after tax in the half came in at just £3.4m — a 97% improvement from £127m the same time a year ago. That was from continuing operations, mind. But I reckon that’s what matters most. And even the total after-tax loss was slashed 89% to £14.7m.
Marketplace
Boohoo — now trading as Debenhams — told us: “Our marketplace model is at the heart of our go forward business. It is stock lite, capital lite, margin rich and highly cash generative“.
What does that mean? It’s all about connecting the company’s online sales platform to goods from a wide range of partners. The old idea of one company only selling its own stuff online is fading. And Boohoo added: “There are now c.20k partners in our ecosystem (up from c.10k a year ago) and we see significant further partner growth potential“.
My own Boohoo holding has plummeted in value since my ill-timed purchases a few years ago. If we really might be on the cusp of a dramatic turnaround, am I rushing out to buy more while the Boohoo share price is still relatively cheap?
Reasons to be careful
No, for a few reasons. Firstly, now the initial excitement’s calmed down a bit, there’s still one crucial fact. This is still a loss-making company. And I’m wary of buying anything not making profits, unless the proposition looks truly exceptional.
Then there’s the first-half revenue fall. I expect it could take some time for Boohoo’s steady revenue levels to establish. But the half saw a 23% fall, and that’s significant. Gross margin dipped a bit too, by 60 basis points.
There was something else nagging at the back of my mind… Oh yes, that’s it… Mike Ashley. Ashley-backed Frasers Group owns around 30% of Boohoo. And the Boohoo board decided to bypass a shareholder vote to approve its new turnaround scheme — which essentially consists of huge bonuses for the bosses if they hit some stretching targets.
Unhappy shareholder?
It’s all apparently above board in terms of AIM regulations. But I suspect Ashley might not be overly pleased at having no say in the executive bonuses decision. He’s not a man I’d want to be on the opposite side of in any possible future corporate governance battle.
On balance, yes, I think Boohoo has to be worth considering now. But I want to see progress on a number of fronts before I’ll come close to putting down any more cash.
