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British fashion brands were under pressure Tuesday, amid anxiety over a faltering U.K. consumer and slowing global growth for luxury labels.
Shares in Boohoo
BOO,
stumbled 10% after the fast-fashion retailer said it expected revenues to fall between 12% to 17% in the year to the end of February as active customer numbers declined at double-digit rates.
The London-listed group, which owns the Debenhams and Karen Millen brands, said the decline in sales would hurt profits in the current financial year, with adjusted earnings before interest, tax, depreciation and amortization falling from the previous forecast range of £69 million-£78 million to between £58 million and £70 million.
Boohoo shares hit a peak in 2020, amid COVID-induced excitement over online-focused retailers, but have fallen about 90% since.
“Boohoo, the party’s on hold for now – the online fashion retailer enjoyed a spectacular run between its IPO in 2014 and 2021, becoming the epitome of fast fashion,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown. “But since then, the celebrations have been muted and performance has been lacklustre, to say the least.”
However, Richard Hunter, head of markets at interactive investor, welcomed management grasping the nettle on expenditure and said some cost headwinds were fading. “Boohoo has become more associated with red flags rather than glad rags, but this latest update at least offers some glimmers of hope,” said Hunter.
“The group has recognized that it needs to trim some fat, and has identified £125 million of annual cost savings over the next two years. At the same time, with the supply chain easing and with lower input prices beginning to filter through, boohoo has been able to pass on some lower prices to customers,” he added.
And Andrew Wade, analyst at Jefferies, rated Boohoo a buy, though reduced his price target from 85p to 75p, stating: “We are encouraged by the group’s operational and strategic progress that should support a clear recovery when the demand picture improves. “
Meanwhile, higher up the fashion price range, Burberry shares
BRBY,
fell more than 3% after UBS downgraded the stock from neutral to sell and clipped its price target from 2,285p to 1,614p.
Since the appointment of Daniel Lee as the creative director in September 2022, the market has had high hopes for the brand’s new direction, said the UBS research team led by Zuzanna Pusz.
“However, the feedback on the new collection seems muted,” wrote Pusz in a note. “Our discussions with selected wholesalers suggest its price point is too high for the targeted consumer, thus driving a reduction in orders y/y, while some of the social media trends also don’t suggest any ‘hype’ among the consumers.”
This muted reaction to “the new brand aesthetics” combined with what UBS terms an increasingly challenging sector context, means that the turnaround may have to be more costly to succeed, said Pusz. “We believe that consensus [earnings] estimates are too high,” she concludes.
In the broader market, London’s FTSE 100
UK:UKX
fell 0.1%, helped by banks but hindered by interest-rate sensitive stocks such as utilities as bond yields continued to rise. The DAX
DX:DAX
in Frankfurt fell 0.8% to its lowest since March as utilities RWE
RWE,
and E.ON
EOAN,
both fell more than 3%.
