(Alliance News) -Â boohoo Group PLC on Wednesday "strongly" refuted allegations made by short seller ShadowFall as it noted a recent fall in its share price.
Shares in the online fashion retailer were down 4.3% at 323.78 pence in London on Wednesday. The stock shed 5.8% on Tuesday.
ShadowFall, which has previously taken aim at London-listed companies such as Future PLC and IQE PLC, on Tuesday in a 53-page report claimed boohoo has provided "a misleading impression" of its free cash flow.
"We see a risk that BOO doesn't use its recent cash call for mergers & acquisitions, but instead combines it with its considerable GBP241 million net cash, to be paid to BOO's chair's son, through material dividends and a potential PrettyLittleThing [non-controlling interest] buy-out," the short seller also alleged.
The chief executive and co-founder of PrettyLittleThing is Umar Kamani, son of boohoo Chair & Co-Founder Mahmud Kamani.
boohoo bought a 66% stake in PrettyLittleThing for GBP3.3 million in 2016. In 2022, boohoo will have the option to acquire the remaining stake.
Further, ShadowFall questioned if PrettyLittleThing's profit is "boosted by another BOO entity 'wearing' some of its costs and calculate that this could result in an additional GBP193 million paid to PLT's NCI".
Firing back on Wednesday, boohoo said free cash flow is disclosed on page 9 of its most recent annual results, and contains "clear" definitions, alongside a full reconciliation down to net cash flow for the financial year, including items such as tax paid and dividends paid to minority shareholders.
The retailer "strongly refutes" any allegations of understating costs incurred by PrettyLittleThing.
"All inter-company transactions are conducted on an arms' length basis. The group operates a multi-brand strategy with the profitability of its more established brands such as boohoo and PLT being significantly ahead of the group's adjusted Ebitda margin of 10.2%; with that higher margin being reinvested into new opportunities and brands that the Group has started or acquired in recent years such as boohooMAN, Nasty Gal, MissPap, Karen Millen and Coast," boohoo said.
Turning to its recent placing, boohoo said it intends, as previously stated, to use the funds to take advantage of "numerous opportunities" that are likely to emerge in the fashion industry over the coming months.
In response to ShadowFall noting that the brother of boohoo's chair is the major shareholder in rival I Saw It First - the short seller claiming that it appears to have a similar supply chain, "virtually identical product offering" to the same demographic - boohoo said the business is an unrelated entity to the firm and is a smaller competitor in a "highly fragmented" marketplace.
Jalal Kamani set up I Saw It First in 2016, having previously worked at boohoo group, the firm said. He retains a small holding in boohoo, of 0.65%.
By Lucy Heming;Â lucyheming@alliancenews.com
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