Boohoo founder fights to avoid giving evidence in US lawsuit
Boohoo (LON:BOO)
There is an article in the FT this weekend with the title:
"Boohoo founder fights to avoid giving evidence in US lawsuit"
https://www.ft.com/content/9cc9126f-2537-4bce-a36f-2b7bd4c1b01f?
This has come out of the blue for me (maybe I just don't have my finger on the pulse) and was wondering if other investors have any views on this?
With total US sales of £92m in 2021, I find it difficult to understand how the class action suit can be seeking $100m but maybe I am missing something.
I have held Boohoo (LON:BOO) since November 2015 (at 37p) with a three month hiatus last March (2020). Those first five years was a very comfortable holding period with only a share price swoon in mid 2017. But since I started re-building my position since June 2020 it has become a very uncomfortable share to hold. While the holding is up 11%, the stock is down 10.6% YTD and it is certainly holding back the portfolio.
Look forward to comments on this and hope Paul Scott stops by.
Thank you.
Regards
Michael
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26 comments
Easy answer to this, get out. The amount of people that still hold this donkey is mind boggling.
PrettyLittleThing
Didn't expect to find this offer reading the Wall Street Journal - almost choked on my Wheatee Flakes.
Bonitabeach
It appears as though their biggest competitor Shein are discounting less:
https://www.wsj.com/coupons/sh...
I don't know much about this, but it's not edifying that the CEO is called to court, and the company then suggests more junior staff should go instead.
Mark Zuckerberg did the same
250p looks like the most likely support level imo.
No upwards momentum at all. Market just doesn't like this share at the moment.
Thanks for posting this Michael.
I had a very small holding in BooHoo, past-tense, meaning I decided to sell it today.
Whilst it is probably going to do quite well in the long run, the FT article you posted raises some ethical points about the owner Kamani, such as:
“Why are we putting . . . [branding] ads out without a massive offer . . . WE WANT SALES SALES SALES . . . not interested in any other bollocks”.
That alone is enough to put me off the company. I also don't understand why he's fighting not to give evidence. Not really the attitude if you've got nothing to hide.
Also, the market doesn't seem that interested in the company at the moment!
Boohoo (LON:BOO) shares down again, I presume this is due the warning from ASOS (LON:ASC) about growth slowing.
Agree herbie47.
ASOS update today included current negatives that are very likely to be affecting BOO and other on line retailers too.
e.g increased freight costs and freight and other delays which are hitting margins.
e.g Brexit negative of shortage of EU workers.
e.g worsening covid situation worldwide which is also impacting on sales.
imo these sorts of reasons are far more likely to be behind current falling BOO share price too than ethical issues.
Also a key worry which markets might well be pricing in to many shares, with significant falls for some (e.g Saga and Carnival) is both the worsening covid news and fear of a new variant resistant to vaccines AND also talk of much worse flu season in Northern Hemisphere too.
BUT note the very confident longer term outlook for ASOS too. That will apply to BOO too, but short term further share price fall quite likely. The lower it goes the better that buy opportunity will be imo but that didn’t stop me cutting my trading stake today for small loss. Will ride it out with my core holding.
https://www.fool.co.uk/investi...
They - Shadowfall - are clearly steeped in the classics de minimis
The US has proved a disaster area for too many UK Companies, thanks partly to America first policies AND as Paul pointed out they will sue for anything. So there’s a high chance BOO will end up having to pay out around $100 million. AND if they’ve done anything else wrong there be sure they will be got for that too!
Bearing in mind how the likes of Dixons, Tesco and Marks and Spencer came so unstuck in the US, AND how BP ended up paying $billions in totally spurious claims following the Gulf of Mexico disaster, perhaps BOO should consider the wisdom of seeing the US as a major market for them? They are doing so well elsewhere so better to focus on Countries without those US negatives?
I think 'a very uncomfortable share to hold' perfectly sums it up Michael. The fundamentals are sound and undervalued, the company seems to be doing all the right things to fuel and support growth and even if they get it wrong they put it right - big time. I look at Boohoo (LON:BOO) (my largest holding) and wonder what they need to do to reverse this slide - Mature ? Change Chairman? Produce even better stellar results? Prove that on line is here to stay? Answers on a postcard.
I wonder if this could perhaps relate to the £23.4m provision that appeared in the 2021 annual report (note 20) for "claims"?
Hi gwilli68,
I wonder if this could perhaps relate to the £23.4m provision that appeared in the 2021 annual report (note 20) for "claims"?
Yes, I agree, and was thinking the same. Note 19 to the most recent accounts, and the Annual Report, both have a mysterious new provision for "Claims", but with no detail about what type of claims this relates to.
At first I thought it might be a bottom drawer account, to stuff some excess profits, but it's more likely now that it relates to this US legal action, at a guess.
On the upside, bear in mind this means that BOO managed to absorb a £23.4m hit to the P&L in H2 last year, and still beat forecasts. It would have absolutely vaulted way over forecasts, if that provision had not been made.
I don't know what the outcome of the legal action will be, but it feels like yet another self-inflicted wound by BOO, playing fast & loose with rules & regulations, and coming a cropper later on. Frustrating, but arguably all the growing pains of a small company in a spivvy sector, becoming a bigger player, and having to operate to tighter rules.
Regards, Paul.
If that £23.4m is to settle this anticipated claim, shouldn't there have been some communication about it, for transparency?
Transparency doesn’t seem to be Boohoo (LON:BOO) 's middle name and I say this as a long term holder and fanboy.
IMO transparency is next godliness but management of many companies today seem to think that it is better to keep communications opaque. God know why.
Maybe one day they will come to their senses and realise that transparency a la Warren Buffett builds shareholder trust and helps underpin the share price.
regards
Michael
Absolutely.
I think investors really appreciate the likes of NEXT, with their clear and transparent communication. It's not something measurable, but definitely adds value to a company.
I made the mistake of buying into Bidstack and their shareholder communication has been atrocious. Misleading, unclear, sporadic, and evasive. Comments disabled on their twitter account to avoid taking flak publicly as their share price capitulated.
I don't think Boohoo are that bad, but they certainly have room for improvement.
I don't have anything to add on this, as I'm not familiar with US law on retailers' pricing policy. It is a constant issue with UK retailers, and has been for decades - staying the right side of the line on what are, and what are not allowed when claiming x% discounts. Trading Standards police it in the UK, or at least used to, and you had to prove that the items had been offered at the original price for x days, to be able to claim say 70% off discounts.
Anyone who operates in the US has to expect to get sued from time to time, as it's the most litigious country in the world, by far.
$100m fines sounds bad, but it's only about 2% of the market cap, so wouldn't have any lasting damage.
There was also a story a few months ago, about some lawyer stirring up trouble, trying to get BOO banned from selling in the US altogether, but nothing seems to have come of that.
Life as a BOO shareholder is certainly never dull.
Thank you Paul for taking the time to post the comment.
Shadowfall is up to his usual tricks this morning on Boohoo (LON:BOO) see twitter (though you can't Paul)
https://twitter.com/ShadowFall...
Last time he commented negatively on Boohoo it was a buying signal.
That said I am finding a 11.7% holding uncomfortable so am considering reducing.
As an aside you have to laugh at ShadowFalls intro:
"ShadowFall seeks truths hidden by aggressive corporate accounting, flawed business models and unethical practices within companies listed in the UK and major European Equity Markets; identifying situations where the market value exceeds intrinsic value."
I think whatever your opinion of Boohoo (LON:BOO) you would be hard to argue that it is currently valued at above instrinsic value.
Regards
Michael
Just for general interest for boo holders…
It is very easy to argue that boo is priced over intrinsic value (usually means discounted cash flow) and perhaps egregiously so. I don’t hold it but I do hold several other shares where an argument can be made they are over intrinsic value (I don’t think so…but I could be painfully wrong). Some even more risky than boo in that regard
Boo may be a good investment but it’s not nailed on. I say this as some inexperienced investors may read general comments on boo in stocko and think this stock is as certain as night follows day
"Price establishment" in UK retail is (or was - I've been away from this for a few years now) managed via a process agreed with the retailer's Trading Standards Officer. The retailer I'm thinking of (a large household name, no longer with us) had to have the original price "established" by being on sale for at least 28 days at that price before the % off could be advertised.
For stock purchased specifically for Sale periods, this was only required in a surprisingly small fraction of the total number of stores: ie. we brought pre-sale stock in at "full" price for that small selection of stores 28 days before launching it at "50% Off!" across all stores on, say, Boxing Day. If you obeyed the agreed rules, you were ok as far as Trading Standards were concerned. (To be fair, the Sale goods were usually tremendous value. Happy days.)
I had a similar experience in the 1980s. We only had to sell one item in one store at the higher price for a chain of probably 300 + shops. As an aside, I also remember that the price of a 2 speed video vs a single speed video was £449 vs £399. The landed costed difference was $1.70!
I don’t know whether what is commonplace here also applies in the US? i.e spurious half price offers as long as the full price had been applied somewhere.
The supermarkets and Marks and Spencer apparently source their gladiolis from the same suppliers. All the supermarkets and Lidl and Aldi sell them with no pretend half price offer between £1.60 and £2.
Marks sell theirs at half price reduced from £5! It’s a deceitful but clever marketing ploy and presumably gives Marks the best margin.
Mountain Warehouse sell almost everything at half price. The supposed and in reality fictional full prices are extortionate. But is what is commonplace here something rarely seen and/or illegal in the US?
Anyway that Alaysha Middle East partnership news today looks good. I had no idea Debenhams had stores in the Middle East.
Zeus Capital issued bullish BOO update today following that partnership news and said it seems more are in the pipeline. Zeus pointed out that the 2023 PE based on conservative forecasts is just 19. BOO regularly beat forecasts.
Like others I’m finding BOO (unusually) to be a drag on my portfolio performance, but even if they end up taking that big US hit, don’t the share price falls look way overdone? I didn’t expect to see sub £3 again, so added yesterday. Have a strong hunch that the next BOO trading update could be a cracker.
Here’s a link to what I think is the same story in a local US paper that is not behind the FT paywall.
https://californianewstimes.co...
Not sure, however, if English is the journalist‘s mother tongue.
Gus.
You can read FT articles by searching the title of the article in Google and click on the FT result. It's a good way to read the occasional article in FT without the subscription.