After struggling over the last 12 months, investors in Boohoo (LSE: BOO) were offered a moment of hope last week as the stock’s price soared nearly 30%. The fashion retailer owns brands such as PrettyLittleThing and Debenhams. However, its slowing performances in recent times have led to investors offloading shares.
So, does this jump represent light at the end of the tunnel? And should I be buying Boohoo shares as such? Let’s find out.
Why are Boohoo shares up?
The jump in the Boohoo share price was due to the release of a positive trading update earlier this month. Within the announcement, the firm stated that net sales for the fourth quarter rose by 7%. On a two-year comparison, this represented a 48% rise. On top of this, full-year net sales were up 14%, while gross sales for the period rose 26% quarter-on-quarter. This shows the firm is producing solid sales growth, and investors clearly took a liking to the news.
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Not all was positive though. Boohoo stated higher return rates were still impacting the business’ operations. And alongside this, the firm still faces supply chain issues. This has been most felt internationally, impacting the US – a core sales region for Boohoo. However, with expected adjusted earnings in line with expectations, the Boohoo share price saw a jump last week.
Boohoo concerns
There are wider issues I must consider with Boohoo shares, however. For example, it has recently had reputational problems. Boohoo received backlash when it was revealed that some of its suppliers were failing to pay workers the minimum wage. In some cases, pay was as little as £3.50 an hour. The firm has taken strides to improve standards, such as terminating contracts with suppliers that fail to meet standards. Yet, as my fellow Fool Rupert Hargreaves stated, the rebuilding of the firm’s reputation is more than likely going to be a slow process. Investors may continue to avoid the business as a result, a concerning factor for me.
Another concern is competition. Growing fast fashion retailers such as Chinese firm Shein pose a threat to Boohoo. Shein has experienced massive growth in recent times. And by 2020, its sales had reached $10bn, representing a 250% increase year-on-year. As growing competitors continue to consolidate market share, this will adversely impact the Boohoo share price.
A further problem Boohoo is going to face in the near future is the rising cost of living. With the cost of food, energy, and household goods all on the rise, consumers may refrain from spending their disposable income on things such as new clothing. Boohoo will take a hit from this.
Should I buy?
While the latest trading update provided Boohoo me with hope after what has been a difficult year, there are too many issues surrounding the firm for me currently. Rebuilding its reputation may well be a slow process. And the growth of competitors such as Shein poses a large threat, while the rising cost of living compounds issues further. As such, I won’t be buying Boohoo shares today.
