The boohoo Group (LSE: BOO) share price rose 4% right this moment (24 October) after the corporate’s largest shareholder introduced plans to attempt to set up retail tycoon Mike Ashley as the brand new CEO.

Right here’s what we find out about this dramatic flip of occasions, and the way it might have an effect on the share price of the embattled quick vogue agency.

What we all know

boohoo inventory has misplaced round 83% of its worth up to now three years. Frasers Group has taken benefit of this collapse, constructing up a 27% stake since final summer season.

Mike Ashley is the founding father of Sports activities Direct, which later advanced into Frasers. In an open letter dated 23 October, he pulled no punches. He referred to as boohoo’s buying and selling efficiency “abysmal” and mentioned there had been “long-term mismanagement“.

The corporate’s just lately introduced debt refinancing was “wholly unsatisfactory” and an “appalling final result for shareholders“. This confirmed the board “has misplaced its skill to handle boohoo’s enterprise and investments“.

And the proposed resolution, within the eyes of Frasers? To name a rare shareholder assembly aimed toward appointing Mike Ashley and Mike Lennon as administrators, whereas changing outgoing CEO John Lyttle with Ashley himself.

Sliding gross sales

What to make of all this? Firstly, the buying and selling efficiency has been horrible, and I don’t assume all of that may be blamed on the powerful macroeconomic circumstances.

For instance, rival Shein reportedly doubled its UK earnings final yr as gross sales surged by practically 40% to £1.5bn. In the meantime, boohoo’s annual income slumped 17% to £1.5bn, with a pre-tax lack of £160m.

I’ve lengthy been bearish on boohoo inventory. A few years again, a fashion-conscious member of the family of mine (a lot youthful and trendier than me) turned her nostril up once I requested if she shopped at PrettyLittleThing (owned by boohoo). No one shopped there anymore, she asserted (considerably of an exaggeration, because it turned out). She and all of her buddies now used Shein.

Admittedly, this was a tiny sampling measurement, nevertheless it confirmed to me that I’m greatest off staying away from the shares. Younger customers might be very fickle with regards to vogue, as boohoo proves.

Massive turnaround potential?

boohoo has recognisable manufacturers and I’ve to imagine there’s potential shareholder worth in there to be unlocked. The corporate has already hinted it could break itself up to understand this worth.

If I have been a shareholder, I’d really feel extra assured with Mike Ashley on the helm (assuming he will get the job). He has huge expertise and is the form of no-nonsense participant that might shake issues up for the higher.

Nevertheless, I doubt co-founder and government chairman Mahmud Kamani will play ball. So there’s nonetheless a number of uncertainty right here.

The inventory appears to be like very low-cost on a price-to-sales (P/S) ratio of 0.25. But gross sales have been falling for a while, together with gross revenue. Extra losses are anticipated in 2024/25. There’s not a lot to be bullish about.

From 28p right this moment, although, I can simply think about a state of affairs the place the share price surges greater if Ashley will get his method. However the inventory stays far too speculative for me to think about investing.

I’ll watch developments from the sidelines, with popcorn.