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Will Boohoo shares continue to drop after unexpected Arcadia buy-out?

Online fashion retailer Boohoo has acquired Dorothy Perkins, Wallis, and Burton from failed retail group Arcadia. Investors have reacted seemingly negatively to the news, after its value dropped over 4% in early trading.

  • Boohoo’s £25.2 million buy-out of Dorothy Perkins, Wallis, and Burton is now complete
  • Staff lay-offs and the threat of an internet sales tax are weighing heavily on Boohoo share price
  • ASOS share price also plunges despite Topshop takeover

Leading online fashion retailer Boohoo group (BOO.L) has confirmed the £25.2 million takeover of three failed retail brands previously under the umbrella of the Arcadia retail group.

Just weeks after Boohoo acquired the Debenhams brand and its website for £55 million, its decision to acquire the Dorothy Perkins, Wallis, and Burton brands is designed to increase the group’s overall market share.

How did the Boohoo share price move after the announcement?

Despite Boohoo’s ambitious plans and its ability to absorb the two-million-plus active customers from the Dorothy Perkins, Wallis, and Burton brands, the initial reaction from investors resulted in a drop in share price.

Although the likes of Debenhams, Oasis, and Warehouse have also been brought into the Boohoo group portfolio in recent months, Boohoo shares fell from 364.9p to 347.8p – a fall of more than 4.5% in today’s early morning trading.

Are the markets cautious with tax rumours set to curb online presence?

Calls for an online sales tax are growing, with major high-street brands penning a joint letter to Chancellor Rishi Sunak, demanding him to 'level the playing field' between online and offline retailers in his upcoming budget 2021 statement. They remain aggrieved that online retailers only pay business rates on their warehouses and lower tax rates than their high-street competitors.

The Sunday Times believes that Downing Street is seriously considering a digital sales tax, which could put a sizeable dent in the Boohoo share price.

Otherwise, the buy-out of Dorothy Perkins, Wallis, and Burton isn’t all it’s cracked up to be; especially when you read the press release from administrators Deloitte. They confirmed that up to 2450 employees would lose their jobs because of the sale, with all high-street stores set to close permanently, and with Boohoo looking to take their brands exclusively online.

It estimates that around 260 roles will remain with the Boohoo group. The vast majority will be head office-based vacancies surrounding brand design, buying, and merchandising, along with the digital marketing of their respective platforms.

Will ASOS shares remain equally volatile after acquiring Arcadia brands?

It’s a similar story for ASOS (ASC.L) following its recent £265 million purchase of Arcadia group’s Topman, Topshop, Miss Selfridge, and HIIT brands.

Although the ASOS share price has soared by well over 50% in the last 12 months, there is a feeling that its value may now be fully priced in the market. Considering the threat of an online sales tax, coupled with the fact that Boohoo group achieved 40% growth in overseas sales compared with just 16% growth for ASOS in fourth quarter (Q4) 2020, Boohoo could have greater upside potential.

The other fly in the ointment for ASOS shares is what will happen when high-street stores reopen and consumers flock in-store, potentially resulting in stunted growth for ASOS and co.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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