Liberum downgrades Boohoo to 'sell', shares tumble

The broker said Boohoo is facing a number of headwinds. Its consumers are under pressure, Chinese fashion retailer Shein is a fierce competitor which will only get worse, cost headwinds are real and the need to invest in marketing and service may hold back profit delivery for longer than expected, it said.

The broker noted that it has been a big fan of Boohoo and what the retailer has done since its IPO in 2014.

"However, we have been slow to adjust that view to the new trading environment thinking branded players were more immune to recent challenges," it said. "This has clearly been wrong. And we addressed this in turning ‘hold’ in May 2022."

Liberum said its view stands in contrast to company guidance, where 20-25% growth and 10% adjusted EBITDA margin model are indicated as achievable. The broker forecasts 7-9% sales growth in the near term and low single digits in the medium term, with a 7-8% terminal EBITDA margin.

"To achieve guidance Boohoo is expecting a return to historic rates of growth in core markets and robust margins. In the medium term, we think Boohoo will struggle to return to the 10% EBITDA margin levels driven by the need to invest in pricing to fight competition and drive demand, permanently higher returns costs, and a slower pace of net revenue growth leading to smaller operating margin leverage than what the company has previously seen."

Liberum has a 35p price target on the shares.

At 1025 GMT, Boohoo shares were down 9.6% at 42.71p.