The boohoo Group (LSE: BOO) share price rose 4% today (24 October) after the company’s largest shareholder announced plans to try and install retail tycoon Mike Ashley as the new CEO.
Here’s what we know about this dramatic turn of events, and how it could affect the share price of the embattled fast fashion firm.
What we know
boohoo stock has lost around 83% of its value in the past three years. Frasers Group has taken advantage of this collapse, building up a 27% stake since last summer.
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Mike Ashley is the founder of Sports Direct, which later evolved into Frasers. In an open letter dated 23 October, he pulled no punches. He called boohoo’s trading performance “abysmal” and said there had been “long-term mismanagement“.
The company’s recently announced debt refinancing was “wholly unsatisfactory” and an “appalling outcome for shareholders“. This showed the board “has lost its ability to manage boohoo’s business and investments“.
And the proposed solution, in the eyes of Frasers? To call an extraordinary shareholder meeting aimed at appointing Mike Ashley and Mike Lennon as directors, while replacing outgoing CEO John Lyttle with Ashley himself.
Sliding sales
What to make of all this? Firstly, the trading performance has been terrible, and I don’t think all of that can be blamed on the tough macroeconomic conditions.
For example, rival Shein reportedly doubled its UK profits last year as sales surged by nearly 40% to £1.5bn. Meanwhile, boohoo’s annual revenue slumped 17% to £1.5bn, with a pre-tax loss of £160m.
I’ve long been bearish on boohoo stock. A couple of years back, a fashion-conscious family member of mine (much younger and trendier than me) turned her nose up when I asked if she shopped at PrettyLittleThing (owned by boohoo). Nobody shopped there anymore, she asserted (somewhat of an exaggeration, as it turned out). She and all of her friends now used Shein.
Admittedly, this was a tiny sampling size, but it confirmed to me that I’m best off staying away from the shares. Young consumers can be very fickle when it comes to fashion, as boohoo proves.
Big turnaround potential?
boohoo has recognisable brands and I have to assume there’s potential shareholder value in there to be unlocked. The company has already hinted it may break itself up to realise this value.
If I were a shareholder, I’d feel more confident with Mike Ashley at the helm (assuming he gets the job). He has vast experience and is the sort of no-nonsense participant that could shake things up for the better.
However, I doubt co-founder and executive chairman Mahmud Kamani will play ball. So there’s still a lot of uncertainty here.
The stock looks very cheap on a price-to-sales (P/S) ratio of 0.25. Yet sales have been falling for some time, along with gross profit. More losses are expected in 2024/25. There’s not much to be bullish about.
From 28p today, though, I can easily imagine a scenario where the share price surges higher if Ashley gets his way. But the stock remains far too speculative for me to consider investing.
I’ll watch developments from the sidelines, with popcorn.
