Liberum maintains 'hold' rating on Boohoo

Analysts at Liberum reiterated their 'hold' rating on retailer Boohoo on Thursday following the group's "weak start" to the trading year.

Liberum noted that Boohoo's first-quarter net revenues declined 8% year-on-year, both below consensus and its own expectations - driven by a first-ever sales decline in the UK, where it believes the company has started to lose share after two years of "significant gains", and a major 28% decline in the US, a result of weak delivery offering and rival Shein taking further ground.

The broker, which also stood by its 70.0p target price on the stock, highlighted that gross margins declined 220 basis points year-on-year to 52.8% against a tough comparative but were up 240 basis points versus the second half of the 2022 trading year.

"Guidance for FY'23E was set conservatively and is maintained, but we believe investment into both gross margin to clear stock and stimulate demand, and in marketing and distribution to attract customers would be needed to achieve growth this FY," said Liberum.

"We expect margins to be in the lower half of the 4-7% range. The shares appear cheap at 0.4x 12m forward EV/sales (vs. 2.5x pre-pandemic) and 7x EV/EBITDA, but near-term risks are high and positive catalysts are c. 12 months away."

Reporting by Iain Gilbert at Sharecast.com