Jefferies downgrades Boohoo to ‘hold’, slashes price target

The bank said that with core brands facing into ongoing declines in sales and profitability, and the increasingly important Debenhams operation still relatively small, it sees limited upside to the share price, even if a favourable funding solution can be found.

Jefferies said Boohoo’s "youth brands" - which make up over 80% of group revenue - continue to face challenges. It said they continue to face "into the legacy of the Covid years, having (like so many others) prepared for growth that never came, and over-invested in staff, stock and infrastructure".

"To support unit economics, the unwind has required value to be reclaimed from customers in the form of proposition downgrades," it said.

"This, in turn, has negatively impacted volumes, driving operating deleverage, and requiring further efficiencies and cuts to the customer facing proposition to bolster profitability."

Jefferies said that layering this circular challenge over a competitive environment that is tougher than ever, it struggles to see Boohoo returning its core operation to growth in the foreseeable.

It pointed out that H125 saw a decline of 18%, expectations of a return to growth in H225 have been pushed out yet again, and the outlook commentary flagged "ongoing headwinds".

It also said that while Debenhams is increasingly "front and centre", it is still small. "We have been struck by the increasing prominence Debenhams is being given," Jefferies said.

"At Head Office it is top of BOO's brand list, the only one on advertising screens…and described by the chief executive officer to us as 'front and centre' of group strategy.

"We are increasingly of the view that a monetisation of core brands (Boohoo/PLT) is a favoured solution to the group's funding challenges, particularly in light of recent deals for TopShop (Asos) and MissGuided (Frasers/Shein).

"While there are clear attractions to the Debenhams marketplace model - broad range, no stock/returns, no design, high margin and return on invested capital - this has to be set against the scale of the business."

Jefferies also said that even after its £40m raise, Boohoo is in need of a funding solution ahead of the Term Loan repayment next summer, with disposals of brands and/or Soho property the most likely candidates.

"A favourable outcome here could clearly be supportive from a valuation perspective," it said.

"However, with core brands continuing to decline, and the Debenhams business still small, we worry this may not be sufficient to justify upside."

The bank cut its estimate for FY25 EBITDA to £46m from £66m, in line with consensus, and said it expects losses in FY25 and FY25.