Boohoo pulls its socks up (again) and Cineworld raises more funds after blockbuster losses

“After another miserable session on Wall Street last night, the FTSE 100 did its best to push ahead with a 0.3% gain to 6,729. Leading the charge were defensive stocks, namely companies that should continue to sell products and services regardless of the state of the economy.Unilever, AstraZeneca and Reckitt Benckiser were among the group of stocks contributing the biggest gains on the market,” says AJ Bell Investment Director Russ Mould.

“After a big rally earlier in the year, mining stocks appear to be losing momentum with Antofagasta and Glencore among the biggest losers on the FTSE on Thursday. Investors seem increasingly concerned that the reopening of the global economy is going to experience more setbacks, meaning it is no longer a given that we’ll see soaring commodities demand.

“Gold and silver miners are among the worst performing parts of the UK market this year, with Fresnillo down 20% year to date.

“Overall, it’s been quite a challenging three months for investors. The market was high on vaccine-inspired euphoria in late 2020, pricing in a lot of future earnings growth before it’s happened. Now reality is sinking in that earnings forecasts could turn out to be too optimistic.”

Boohoo

“It’s encouraging to see Boohoo deliver on its promises to facilitate better standards in its supply chain.

“Its reputation was in tatters last year after intense media scrutiny into dubious practices involving its suppliers and a general unethical approach to doing business.

“While there is an argument to say Boohoo should never have worked with suppliers that have poor standards, the retailer has at least admitted mistakes and taken steps to remedy the situation.

“These actions have resulted in Boohoo upping its game with ESG (environmental, social and governance) issues, making a firm effort to stamp out modern slavery practices, and enabling better oversight of its supply chain.

“It is now working with fewer suppliers and has introduced new sustainability strategy for the manufacture of clothes, terms for suppliers and reducing its carbon footprint.

“Boohoo is by no means a perfect business following these actions. There is still the fundamental issue that its business model facilitates waste – low pricing points means customers often buy a dress, wear it once and then chuck it.

“There is also the issue that Boohoo faces the possibility of a US import ban relating to labour issues in its supply chain. The company previously said it wasn’t aware of an investigation, but from the market’s perspective this remains a live risk.

“Boohoo is having to make significant changes in the public eye, and it could become a model example of how the world will no longer accept substandard business practices, forcing change for the better.”

Cineworld

“It may not have been able to show any big films for a while but the losses Cineworld has unveiled this morning are truly blockbuster.

“It’s no surprise that the cinema operator is raising funds yet again to boost the buffer it has to ride out a period when it essentially isn’t selling any tickets.

“There is also little room for the pace of reopening in the UK and US to slow before the company might need to go cap in hand again.

“These are (hopefully) short-term concerns which have been exacerbated by the debt built up during Cineworld’s ambitious and ultimately ill-timed acquisition-led growth in recent years.

“Longer term the question for the business is whether the theatrical window, the time when films are exclusively shown in cinemas, will survive the pandemic.

“Clearly Covid-19 has forced big studios to turn to streaming platforms instead – with access to the newest releases sold at a premium price roughly in line with what you would pay to see a film on the big screen.

“The cinema industry has typically done well in previous economic downturns – offering a (relatively) cheap escape from the strains of daily life. However, this latest downturn is different because of its cause.

“Will people stay away from cinemas because they’ve got used to watching movies from the comfort of their sofas and are still wary of infection risks? Or will there be significant pent-up demand as people long to return to the rituals of their pre-Covid existence? Cineworld will be hoping for the latter and that the cinema industry still has a long-term future.”

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