Boohoo Group PLC (AIM:BOO) remains the UK’s most shorted stock leading up to the online fast-fashion retailer's interim results scheduled for Wednesday, September 28.
Data supplied by Bowmore Asset Management noted 215 major short positions taken out against the company in the past year, with B&Q owner Kingfisher and fellow online retailer ASOS trailing.
All three companies had been trading on high earnings multiples during the pandemic, having seen their sales growth surge as they benefited from lockdowns, but Bowmore said they have since fallen out of favour with the market after failing to deliver the same level of rapid sales growth in the past year.
Charles Incledon, client director at Bowmore Asset Management, said: “Retailers are expected to bear the brunt of the UK’s cost of living crisis and the share prices of many of the UK’s e-commerce giants have already fallen heavily. Many of those short positions are still in place, meaning investors think there’s more to come.”
But equities analysts at Peel Hunt provide some optimism: “At the end of September, we expect Boohoo to announce sales and profit in line with its guidance in May. The focus will be on the future and not the past.
“On this front, we believe the group’s £325mln banking facility and asset-backed balance sheet provide sufficient cover for a tough year ahead and the key distribution projects in train.”
However, Peel Hunt has cut its target price from 140p to 100p, since it’s “not going to be a stellar period for the sector”.
Pricing will be one area of interest after offline fast-fashion rival Primark threw down the gauntlet, saying it will not hike its prices any further, seemingly willing to take the hit on its margins to prioritise sales, customer loyalty and its budget reputation.
Early in September there were some bearish broker notes on the retail sector from the likes of UBS and JPMorgan, with the latter cutting earnings estimates it warned the cost-of-living crisis for UK consumers has "just begun" and that many retailers' input costs and operating expenditure are “still much higher than pre-crisis levels”.
It cut its forecasts for Boohoo's earnings per share by 20.6% for this year and 16.7% for next, along with several others.
Laura Hoy, analyst at Hargreaves Lansdown, said the big question is whether or not demand is holding up in the current environment.
"Supply chain bottlenecks are an industry-wide issue, but they could put a serious damper on boohoo’s growth plans," she said. "First quarter results were lacklustre at best and given the group’s investing heavily in expanding capacity, demand is essential if it’s to pull off an expansion in the US.
"After a revenue decline in the first quarter, investors will be looking for improved trading at the half in order for the group to make good on its forecast for single-digit full year growth. That’s a tall order considering consumers are more cash-strapped than ever.
"While the group’s appeal to the younger generation remains in question as budgets are stretched, the addition of new brands that cater to different demographics have the potential to bring fresh growth through the door. It would be good to see an update on how acquisitions like Debenhams and Dorothy Perkins are faring under the boohoo umbrella,” Hoy said.