Online fashion retailer boohoo became the most shorted company in the UK last month after two new firms betted against the company, data from the Financial Conduct Authority (FCA) shows.
Shorted stocks in the business reached 5.9% of its share capital at the end of February – up 1.4 percentage points from the month before – signifying a lack of confidence from the market in its ability to deliver.
It came when Kairos Investment Management and Qube Research and Technologies added positions jointly worth 1.6%, although some reductions from the other six firms who shorted the company in February offset some of this. (At the time of publication, however, the FCA’s short register was showing that Kairos had already closed its short in boohoo).
Source: FCA
Last month, boohoo unveiled a new growth plan at its general meeting, aiming to align the interests of executives with shareholders and after a collapse in the firm’s share price.
Directors and senior leaders at the company could be awarded part of the £175m bonus package if the company’s market cap reaches £5bn. This is quite a distance from the current size of £694m, but the target has been divided into five hurdles.
The first would be to reach a market cap of £1.2bn and recover the share price to 95p, which would result in a shared pay out of £17.5m. Shares in the company currently trade at 53p, having shrunk 82.4% from 301p three years ago.
Share price of Boohoo over the past three years
Source: FE Analytics
Boohoo has struggled to regain the momentum it had during the pandemic when lockdowns led to a boom in ecommerce sales. Indeed, the group announced a 13% fall in revenue year-on-year in January’s financial results, taking in £637m in the last four months of 2022.
Chairman Iain McDonald said the new incentive plan aimed at rebuilding the company’s share price and market cap needed to “reflect the new reality” and “return boohoo to growth and value creation”.
The share price went up 11.8% after the new growth plan was announced, but Chris Beauchamp, chief market analyst at IG Group, said challenges lie ahead of the company.
“Boohoo continues to suffer the effect of the squeeze on consumer spending and, while it is undertaking heroic cost-saving measures and rationalising across the board, for now sales remain under pressure and are expected to keep falling,” he said.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, added that the easing of global supply chains following hold-ups during the pandemic could help moderate boohoo’s cost growth this year.
He said: “With freight costs falling and cost inflation normalising, boohoo will have to begin growing the top line again if it wants to improve its fortunes.
“The USA market is seen as the big growth market for the group, but it’s struggled to make real headway there yet.”
The group reported £129m in revenue from the US in the last four moths of 2022, down 17% from the same period the year before, according to its latest trading statement.
Firms may have increased their short bets on boohoo in February, but the number of shorted stocks in fellow online retailer ASOS dropped 1.2 percentage points throughout the month.
Shorted shares eased to 5.7% after GAM International Management cut its short in the company worth 1.8%, leaving five firms still betting against the company.
ASOS has also suffered weaker revenues in the post-pandemic slowdown of ecommerce, with its share price dropping 78.7% in 2022.
Share price of ASOS in 2022
Source: FE Analytics
Both ASOS and boohoo may be among the UK’s most shorted companies, but positions in the companies have shrunk from their peaks last year.
The number of short positions in boohoo peaked at 10.4% in September and ASOS was as high as 8.8% in November, so firms have had some relief in pressure on them over recent months.
Likewise, there has been some improvement in investor sentiment in 2023, with the share prices of ASOS and boohoo climbing 70.7% and 50.3% since the start of the year.
The company in the top 10 to have the largest drop in shorted stocks last month, however, was abrdn, after firms lowered their bets by 1.6 percentage points.
The proportion of shorted stocks went down to 4.5% in February despite the company announcing a £615m loss before tax for 2022 in its annual report last month.
This loss, compared to a £1.1bn profit the year before, could have been disappointing news to shareholders, yet its share price rose 3.1% following the announcement.
It had a tricky ride in 2022 as shares slid 14.9% throughout the year, but it has performed better in 2023, climbing 22.5% since the start of the year.
Share price of abrdn in 2022 and 2023
Source: FE Analytics
The only new entrant to the top 10 list In February was greetings card company Moonpig, where short positions rose 0.6 percentage points to 3.9%.
It replaced business services company FD Technologies, which had only entered the list the month before. Short positions in the group dropped 0.4 percentage points to 3.4% throughout February.