British fashion brands face pressure amid economic concerns

By Anonymous

British fashion brands are facing challenges as the U.K. consumer market weakens and global growth for luxury labels slows down. One brand in particular, Boohoo, has been hit hard, with its shares dropping by 10%. The fast-fashion retailer expects a decline in revenues between 12% and 17% for the year ending in February, as active customer numbers continue to decline at a double-digit rate.

Boohoo, which also owns the Debenhams and Karen Millen brands, predicts that the sales decline will have a negative impact on profits this financial year. The adjusted earnings before interest, tax, depreciation, and amortization are now projected to be between £58 million and £70 million, instead of the previous range of £69 million-£78 million.

Initially, Boohoo shares experienced a surge in 2020 due to the excitement surrounding online-focused retailers during the COVID-19 pandemic. However, they have since fallen by approximately 90%.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, commented on Boohoo’s performance: “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. But since then, the celebrations have been muted and performance has been lacklustre, to say the least.”

Despite the challenges, Richard Hunter, head of markets at interactive investor, expressed optimism about Boohoo’s management taking action to control expenses and noted that certain cost pressures are diminishing. “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.

He further added, “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 lower input prices starting to have an effect, Boohoo has been able to pass on some lower prices to its customers.”

Boohoo and Burberry: Analyst Ratings and Market Reactions

Boohoo’s Operational Progress Supports Recovery

Analyst Andrew Wade from Jefferies has expressed optimism about Boohoo, rating it as a “buy,” despite lowering the price target from 85p to 75p. Wade believes that Boohoo’s operational and strategic progress will contribute to a clear recovery once the demand situation improves.

Burberry Faces Challenges with New Collection

On a different note, Burberry has faced a setback in the fashion market. UBS downgraded Burberry from neutral to sell and decreased its price target from 2,285p to 1,614p, causing a decline of over 3% in Burberry’s shares. UBS’s research team, led by Zuzanna Pusz, revealed that the brand had high expectations after appointing Daniel Lee as the creative director in September 2022. However, Pusz’s note mentioned that the feedback on Burberry’s new collection has been lackluster. Selected wholesalers have indicated that the price point of the collection is too high for the target consumers, resulting in reduced orders year-on-year. Moreover, social media trends do not indicate any significant consumer “hype” surrounding the collection.

This underwhelming response to the new brand aesthetics, combined with a challenging sector context, suggests that a successful turnaround for Burberry may require more significant investments. Pusz believes that current earnings estimates are too optimistic.

Market Performance

In the broader market, London’s FTSE 100 (UK:UKX) experienced a slight decline of 0.1%. Banks performed well, but interest-rate sensitive stocks like utilities faced challenges due to rising bond yields. On the other hand, Frankfurt’s DAX (DX:DAX) fell by 0.8%, reaching its lowest point since March. Utilities such as RWE (RWE) and E.ON (EOAN) dropped more than 3% during this period.

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