Deutsche Bank analysts have slashed their price target for Boohoo Group PLC (AIM:BOO) after the retailer was hit by losses due to a slump in sales.
Boohoo said yesterday that its half-year revenue shrank 17% to £729.1 million, posting an adjusted loss of £9.1 million for the period compared to a profit of £6.2 million a year earlier.
In response, the company said it had identified £125 million in potential annual cost savings for 2024 and 2025.
Analysts at Deutsche Bank Research slashed their price target for the retailer to 25p, down from 43p, but maintained a ‘hold’ recommendation in a note issued to clients on Wednesday.
The dent to Boohoo’s sales performance in the first half of the year is expected to lead to a “material market share loss”, the analysts said.
They said the smaller 10% drop in sales of its core brands also likely reflects a “market share loss”, forecasting a double-digit decline in sales in the second half of the year.
The analysts questioned why Boohoo’s plan to reinvest gross margin gains into lower prices and improved delivery had not translated into sales growth, raising concerns about its competitiveness.
As a result, the bank's 2024 adjusted EBITDA forecast was cut 15%.
On the same day, analysts at Barclays similarly warned that Boohoo “now expects further revenue declines”, saying that the company’s valuation is “still not cheap without earnings momentum or visibility”.
While they said Boohoo's reinvestment strategy to pump money into ‘core brands’ is “sensible”, they are not convinced it is enough to return to growth and regain lost market share.
Given that the retailer's inventory is down 35% year on year and it has launched a distribution centre in the US as planned, Barclays praised its headway in "controlling the controllables”.
However, Barclays analysts warned of “uncontrollables” that could affect its business, including consumer sentiment and competition from rivals such as Shein and Temu.
“We think management's strategy of focusing on 'core brands' and continuing to (re)invest in those is sensible,” Barclays’ equity research analysts said in a broker note.
“But until we get a clearer indication of that strategy (i.e. they gain market share, versus declining -10% / in line with market), we struggle to build confidence. Even at 10x '24 EV/EBITDA, shares don't screen as cheap relative to other e-commerce companies in our coverage.”