When Boohoo shareholders lose patience: Is a split the only way out?

Boohoo Group PLC, owner of the Boohoo fast-fashion brand and the Debenhams department store chain, is facing increasing pressure from shareholders to split its businesses. According to a report in The Times, executives are now considering the drastic option in response to a falling share price and declining sales.

Several shareholders have reportedly urged the company to divest some of its most successful brands, such as PrettyLittleThing and the Boohoo brand itself, a move they say could unlock hidden value in the business and revitalise its share price.

What is Boohoo's financial situation? Are the doubts justified?

Five Wall Street analysts who have rated Boohoo in the last year have given the stock a consensus rating of "Strong Sell." Three analysts have rated it "Sell," while two have given it a "Hold." This negative sentiment reflects concerns about the company's financial health and future prospects.

Investor Mark Rogers echoes these concerns. While he acknowledges the potential for a turnaround, he points to several challenges facing Boohoo, including persistent losses. “The company is expected to post negative EPS until at least 2027. Additionally, while net sales are expected to grow, the growth rate is relatively modest,” he explains. But what worries him most is that the company’s turnaround plan relies heavily on cost cutting and margin improvement, which may not be sustainable in the long term. In reality, what investors want to see is sales growth.

Despite these challenges, Rogers identifies a few potential catalysts that could drive the stock price higher. First, Boohoo has a positive earnings per share forecast, which could significantly boost investor confidence. Furthermore, if Boohoo can successfully implement its cost-cutting measures and improve its margins, this could lead to a turnaround.

Finally, “generating positive free cash flow could signal better financial health,” he says. However, Rogers also highlights the uncertainty surrounding Boohoo’s future. The wide gap between analysts’ price targets suggests significant disagreement over the company’s prospects. Moreover, it may take more than 12 months to assess the effectiveness of Boohoo’s turnaround plan.

What's coming?

While the possibility of a full break-up remains uncertain, sources at The Times suggest that the sale of Debenhams and Karen Millen, two recent acquisitions, could be a first step. The fate of the company's flagship fast-fashion brands, Boohoo, BoohooMan and PrettyLittleThing, is also under discussion.

The potential restructuring comes amid financial difficulties for Boohoo. In May, the company reported a pre-tax loss of 159.9 million pounds, a sharp increase from a loss of 90.7 million pounds a year earlier, while revenue fell 17 percent to 1.46 billion pounds from 1.77 billion pounds.

Yet, chief executive John Lyttle was optimistic at the time, saying Boohoo was well positioned to return to sustainable, profitable growth.

However, shareholders appear to be losing patience. The proposed split represents a radical change in strategy for Boohoo, and its success will naturally depend on masterful planning and execution.

This article originally appeared on FashionUnited.FR. Translation via AI and edit by Rachel Douglass.