FTSE hits 17-month low, Burberry brings in new creative chief and Boohoo warns again

“With the prospect of a sharp economic slowdown, further pain for households and businesses, and investor sentiment on its knees, alas equities markets continue their descent,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 dropped 2.1% to 6,836 as shares in both defensive and growth stocks were out of fashion. That’s the UK index’s lowest level since April 2021.

“Legal & General, a favourite among investors for its generous dividends and a popular pension holding, was among the top fallers, down 3.3%.

“Others having a bad day on the market included Ocado, Rolls-Royce and Unite. Even ‘in demand’ stocks deemed to have pricing power regardless of the state of the economy were falling, including Unilever.

“The market will be reassessing the growth prospects for businesses, with share price declines reflecting the growing likelihood for earnings downgrades. Some investors may even have become too scared to hold a lot of equities and might be trimming holdings in favour of increasing cash positions, given the prospect of much greater rates on savings accounts.”

Burberry

“The rise in Burberry’s share price is perplexing given the news that chief creative officer Riccardo Tisci is leaving, as he was well respected. Yet in the fickle world of fashion, trends come and go, and so the arrival of someone new may just have excited investors.

“Tisci’s replacement is Bradford-born Daniel Lee who is credited for helping to breathe some new life into Italian luxury brand Bottega Veneta.

“Burberry’s main challenge of late has been linked to Covid restrictions rather than whether someone likes its latest scarf or coat. Sales have suffered because of Covid lockdowns in China, one of its key selling regions. Solving that problem is currently far more important to its business than what Lee might conjure up with a pen and sketchbook.

“Tisci’s departure also begs the question if there is some unrest inside the company, given that chief operating and financial officer Julie Brown last week handed in her notice. Perhaps it’s simply a case of new chief executive Jonathan Akeroyd working out who he wants on his team and who might not fit with his strategy for the business. We’ll get an insight into what he plans for Burberry with a strategy update in November.”

Boohoo

“Once again Boohoo feels like a very apt name for the fallen fast fashion firm. Today’s warning shouldn’t come as a shock given the backdrop the business is facing but that doesn’t make it any less sobering.

“The peak in the shares above 400p at the height of the pandemic feels an awful long time ago. Though questions had emerged about the business model even during those heady days as the company was dogged by a scandal over working conditions in its supply chain.

“If Boohoo leaned on unsustainably cheap labour to make the model work, it faces a very tough task now when other costs are going through the roof. This has not been helped by a big increase in return rates.

“The online retailers got used to an appreciably lower volume of returns during Covid as people were reluctant to go the post office. That’s no longer the case and with the pressure on people’s finances they can’t afford to be so relaxed about holding onto unwanted items.

“Margins are now looking as dangerously skinny as a pair of Boohoo’s jeans and the new distribution centre which could drive cost savings can’t become operational soon enough.

“Even with this and other self-help measures Boohoo looks vulnerable and squeezing suppliers won’t be enough on its own to get the company out of trouble.

“Given the gloomy backdrop it is no surprise Boohoo is one of the most heavily shorted UK stocks and with the company swinging from a net cash to a modest net debt position, attention may turn to the strength of its balance sheet as sales and margins continue to come under pressure.”

These articles are for information purposes only and are not a personal recommendation or advice.