Boohoo Group Plc shares are racing ahead of online fast-fashion rival Asos Plc after the Manchester-based company surprised investors by generating cash even as UK consumers cut back spending in the cost-of-living crisis.
(Bloomberg) — Boohoo Group Plc shares are racing ahead of online fast-fashion rival Asos Plc after the Manchester-based company surprised investors by generating cash even as UK consumers cut back spending in the cost-of-living crisis.
Boohoo’s full-year results beat expectations Tuesday, sending the stock up as much as 17%. Meanwhile, Asos shares have lost 34% of their value since the retailer last Wednesday reported first-half results that missed estimates.
“Boohoo reported numbers that exceeded initial fears, and surprisingly, the company now holds a net cash position,” Eleonora Dani, an analyst at Shore Capital, said in an email. That contrasts with Asos’s results, which were “perceived as highly disappointing” and have “placed significant pressure on the company to perform well in the second half of the year.”
Dani upgraded her rating on Boohoo to buy from hold on Tuesday, while maintaining her sell recommendation on Asos due to “skepticism regarding the company’s ability to recover effectively.”
Jefferies analyst Andrew Wade also pointed to Boohoo’s strong cash performance in a note to clients on Tuesday. “This performance endorses Boohoo’s more nimble model,” he wrote, keeping his buy rating on the stock.
London-based Asos last week said it had more than £400 million ($501 million) in cash and undrawn facilities at Feb. 28, calling its balance sheet “robust and flexible.”
Asos and Boohoo have both been hurt by surging inflation in the UK, which has pushed shoppers to prioritize their spending on essentials like food and energy bills instead of fashion. Shares out on loan, an indication of short interest, represent about 20% of Asos’s free float as of Friday, according to data from S&P Global Market Intelligence. It’s almost 10% of Boohoo’s free float.
“Both retailers are in turnaround plans to boost profitability and are still facing similar cost-of-living headwinds but it seems that Boohoo is ahead of the curve on cash generation,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said in an email.
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