Shore Capital upbeat on Boohoo's prospects despite sales warning

The company said on Tuesday that group sales would decline by 12-17% in the year to 28 February 2024, much lower than previous guidance of sales decrease of up to 5%. This was due to a slower-than-expected volume recovery and the continued targeting of more profitable sales within its labels.

As a result, Boohoo's share price dropped 9% on Tuesday morning, falling to 28.73p by 0940 BST.

Nevertheless, Shore Capital highlighted that the targeted approach to more profitable lines should boost profitability.

Meanwhile, Boohoo's financial standing "appears resilient", the broker said. It has a strong balance sheet and significant liquidity position of £290 million with net debt in line with guidance, which allows the company to make ongoing investments in growth-focused projects, including the launch of the US distribution centre and automations in Sheffield.

"Significant investments in areas such as best-in-class logistics and in-house technology platforms have been facilitated by a robust cost savings programme, earmarking over £125 million of annualised cost savings across various domains for FY24F and FY25F," Shore Capital said.

Regarding Boohoo's valuation, the stock trades at an enterprise value-to-EBTIDA ratio of seven.

"In our view, the group remains steadfast in its medium-term objectives, leveraging cost savings and operational efficiencies to fund strategic initiatives. These are aimed at restoring growth and profitability."