Boohoo is facing financial problems amid declining sales and increased debt

Boohoo, the online fashion retailer known for its diverse portfolio of brands including Debenhams and Pretty Little Thing, is facing significant financial challenges as losses soar and sales plummet.

The company reported a staggering 76% increase in losses to £160 million, alongside a 13% drop in sales to £1.8 billion for the fiscal year ending in February.

Boohoo CEO John Lyttle attributed the company’s problems to challenging market conditions characterized by high levels of inflation and weakened consumer demand. In response, Boohoo plans to implement cost-saving measures worth £125 million, including increased automation at its Sheffield warehouse and the closure of a branch in Daventry.

The company’s problems are further compounded by a reduction in its customer base, with an 11% decline in the number of active users on the platform, all of whom are spending less and visiting less frequently. Boohoo chief financial officer Stephen Morana highlighted increased competition from traditional retailers expanding online, as well as emerging players such as Shein.

To limit losses, Boohoo has significantly reduced investments in brands such as Warehouse, Oasis, Wallis and Dorothy Perkins, diverting their sales through the Debenhams platform. This strategic shift resulted in a £22.4 million write-down related to the devaluation of these brands, acquired through the collapse of Philip Green’s Arcadia Group in 2021.

Despite the challenges, Morana highlighted Boohoo’s robust balance sheet, with £130m of real estate assets and a stake in Revolution Beauty. Furthermore, the company witnessed an improved trading performance in the second half of the financial year, with core brand sales declining by just 4%.

However, Boohoo’s share price has suffered a significant decline, indicating that investors are concerned about its future prospects. The company’s failure to meet performance targets also affected its ability to issue shares to Pretty Little Thing shareholders, including Umar Kamani, the son of Boohoo co-founder and chairman Mahmud Kamani.

Looking ahead, Boohoo remains optimistic about its growth potential, with a focus on sustainable and profitable expansion strategies. Nevertheless, analysts warn that the company’s tarnished reputation and financial problems pose significant challenges to the recovery and long-term viability of the highly competitive online retail landscape.