Boohoo Group PLC (AIM:BOO) challenges in competiting overseas with the likes of Shein and Zalando will weigh on its hopes for a sales recovery, said analysts at RBC Capital Markets, which downgraded the retailer to 'underperform'.
Analysts forecast a revenue decline of 5% in the financial year 2024, compared to consensus growth of 3%.
RBC said this reflects “ongoing consumer pressure, a less competitive delivery proposition in international markets and a structurally higher returns rate.”
RBC also expects the company’s recently opened distribution centre in the US to deliver slower and less-than-expected growth.
Success stateside is by no means a given, considering the popularity of Shein, said the broker, with Google searches for its Chinese rival in America are 30 times higher, compared to two times higher in the UK.
Aside from dealing with an established competitor, RBC believes the company needs to improve its service and increase its marketing spending in the US.
In Europe, RBC also said it prefers Zalando due to it being the leading online destination in the continent.
Boohoo “faces more headwinds to margin recovery” in comparison to its competitors, said RBC.
Challenges the online retailer faces specifically include limited scope to raise product prices further, as well as cost and execution risks that come with its US distribution centre.
RBC forecasts adjusted EBITDA margins of 3.7% and 4.3% in the financial years 2024 and 2025, compared to consensus of 4.3% and 5.5%.
The target share price remains unchanged at 35p.