boohoo (LSE:BOO) shares have been in a tailspin over the past couple of years. However, the online fast-fashion retailer has made an exceptionally strong start to 2023 after sinking to a five-year low in December. The share price is up 42% this year, reaching 52p today.
As sentiment toward the AIM-listed company improves, could an investment in boohoo shares make me rich?
Here’s my take.
Back in vogue?
boohoo’s business model was almost exclusively confined to the online world until last weekend. In a UK first, the company launched a pop-up store in London to showcase its spring season collection.
The retailer previously experimented with a New York pop-up in 2014. In addition, Karen Millen, which is part of the boohoo group, briefly resumed physical trading at a temporary weekend store last month. And in 2021, it had opened a Debenhams beauty store in Manchester.
A foray into bricks-and-mortar retail might be a shrewd move. Various consumer surveys indicate enthusiasm among the British public for a return to in-store shopping after the online boom during the pandemic.
But Jefferies analysts have also highlighted boohoo’s “marked outperformance” over FTSE 250 rival ASOS with regard to web traffic and app downloads in 2023.
Some kind of physical footprint coupled with with renewed strength in its core online offering could be an attractive combination to drive further growth in boohoo’s share price.
Reasons to be cautious
However, its toe-in-the-water approach hardly represents a big commitment to physical retail. And there are plenty of challenges that could derail the company’s solid progress this year.
Chinese competitor Shein has taken the world’s fast-fashion market by storm. Shein is also boosting its in-person retail presence in the UK with pop-up stores next month in Bristol and Cardiff. This follows the company’s Birmingham experience that coincided with boohoo’s London launch. The battle for Gen Z consumers is heating up and boohoo will have to be nimble to stay in the race.
Beyond the competitive landscape, my primary concern rests with boohoo’s latest financial results. In my view, they don’t appear to justify the recent rapid share price growth.
Total revenue for the four months to 31 December 2022 was down 11% year-on-year at £637.7m. In addition, the company expects its EBITDA margin for FY23 will be 3.5%. That’s toward the low end of a previous forecast of between 3% and 5%.
Plus, boohoo faces a backlash regarding renumeration plans. The business intends to reward bosses with £175m of bonus payments if the share price recovers in line with a series of targets. Although chairman Iain McDonald is confident this will “resolutely align” the interests of management and investors, many independent shareholders voted against the proposal.
Should I buy boohoo shares?
There are positive signs for boohoo after a miserable 2022. In particular, I like the company’s — albeit limited — ambition to tap into the potential of bricks-and-mortar retail.
That said online retail remains its key focus, and I’m yet to see enough concrete evidence the business is on a sustainable road to recovery. Intensifying competition is a big worry.
As things stand, I don’t think boohoo shares are my golden ticket to get rich. I await the release of the full-year results in May, but, as things stand, I’ll be looking elsewhere for stocks with a better risk/reward profile.
