HL View27 Nov 2025 16:04
Boohoo’s sales continued to slide lower over the first half, driven by declines in its Karen Millen and its Youth Brands divisions. Despite this, strong cost-cutting initiatives are helping to prop up the bottom line, and the market reacted very positively on the day.
Performance in its other division, Debenhams, is much better thanks to its marketplace model. This involves allowing third-party brands to sell their goods on Debenham’s online platform, with boohoo taking a cut of any third-party sales made, and banking just that cut as revenue.
The marketplace model brings a host of benefits, allowing sales to scale quickly as more sellers are brought into the fold. The third-party sellers also own the stock and are responsible for picking, packing and shipping orders, removing a host of costs and inventory risk from boohoo’s operations. That’s had a significant positive impact on the group’s profitability so far, and more cost benefits are expected in the near term.
The marketplace model has become the blueprint for an attempted turnaround in its other struggling divisions. For context, despite only contributing around 17% of group revenue last year, Debenhams brought in more than half of the total cash profit (EBITDA).
While progress on trimming the cost base has been impressive, future growth relies on getting the top line moving in the right direction again. Customer numbers were continuing to fall at the last count, so breathing life back into its Youth Brands division (which includes PrettyLittleThing, boohoo, boohooMAN) needs to be the main focus in our eyes. With their strong social media following, these brands have the potential to be great assets. That’s why we’re disappointed to see the group exploring options to sell PrettyLittleThing.
To be clear, the group remains loss-making. A nearly £40mn equity raise in 2024 means the balance sheet’s in reasonable health for now. It’s also provided some breathing room while the CEO Dan Finley, executes his strategy change.
Tensions with its largest shareholder (Frasers) remain high, causing boohoo to push through a new management compensation package without shareholder approval. Alongside a murky track record of labour exploitation, elevated corporate governance risks are something for investors to be aware of.
Despite the pivot in strategy, our concerns about Boohoo haven’t disappeared. We’ll need to see key customer metrics, sales and profits trending in the right direction before we get too excited. The lowly valuation may look attractive at face value, but it reflects the major challenges ahead, as well as a competitive retail market.
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