Potential bargains in the fashion sector were the focus for investors today after Superdry (LSE:SDRY) boosted its balance sheet and rivals ASOS (LSE:ASC) and Boohoo Group (LSE:BOO) got new City price targets.
The trio once boasted market valuations running into the billions of pounds but those heady days have been blown away by a perfect storm of rising costs, supply chain challenges and weakening consumer demand.
All feature in or around the 90% club of fallers over the past five years, with ASOS currently the most valuable based on this morning’s market capitalisation of £450 million.
Its shares rallied 11.7p to 390.1p today after UBS said it expected the fast fashion chain’s annual results on 25 October to show signs of turnaround progress.
The bank upgraded to “buy” with an updated price target of 550p, highlighting its confidence in profit and cash flow delivery along with a mid-term recovery in sales.
It said: “We believe that ASOS is addressing the key areas of underperformance such as basket economics, assortment management, sourcing and inventory management through its 'Driving Change' plan.
“The margin rebuild and profit recovery from this plan are under-appreciated, in our view.”
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The results presentation will mark a year since chief executive José Antonio Ramos Calamonte unveiled his turnaround plan. Since then he has strengthened the balance sheet through a new long-term £275 million financing facility and £80 million equity raise, where retail investors were offered shares at 418.1p.
Calamonte hailed the fundraising for giving ASOS significant flexibility, free of any profit-based covenants, to take the action needed to turn around the company.
At rival Boohoo, the message from management alongside yesterday’s interim results focused on the “substantial progress” of key projects and initiatives such as a new US warehouse, improved sourcing lead times and investment in pricing.
A focus on profitable growth meant revenues for the six months to 31 August fell 17% to £729.1 million but the gross margin edged up 90 basis points to 53.4%. Sales are forecast to fall by up to 17% across the financial year, triggering a fresh slide for shares.
The AIM-listed stock fell a further 1.8p to 28.9p today as Deutsche Bank cut its 2024 earnings forecast by 15% and slashed its target price by 42% to 25p.
The bank said: “The reinvestment of gross margin gains into lower prices and better delivery does not appear to be having a material impact on sales growth at this stage, which suggests the sales weakness relates to a deterioration in the boohoo competitive position.”
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Peel Hunt is more optimistic based on a 75p target, although it said yesterday that signs of sales stabilisation will be needed to change the mood towards the stock. Looking further ahead, the broker believes there’s a path for Boohoo to deliver a substantial margin recovery over 2025 and 2026 as one of the sector’s big recovery prospects.
The recovery hopes of Superdry received a major boost today when it announced the sale of its intellectual property in South Asia to India’s Reliance Brands.
The proposed move bolsters Superdry’s balance sheet by £30 million and also accelerates opportunities for the brand in India through the creation of a joint venture with Reliance.
The shares were as low as 38p in mid-September after the company reported an adjusted loss of £21.7 million in its delayed annual results. They rallied 26% or 11.5p to 54.7p today as investors welcomed a second big overseas fundraising move after an earlier strategic deal to sell the Superdry trademark in certain Asia-Pacific countries.
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