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Boohoo 'strongly refutes' cashflow claims of short-seller

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Charisma Belle attends the Boohoo x AfterPay Mardi Gras Party on February 29, 2020 in Sydney, Australia. (Caroline McCredie/Getty Images for Boohoo)

Online fast fashion group Boohoo (BOO.L) has hit back at claims made by a short-seller that it has exaggerated its free cashflow.

British short-seller Shadowfall on Monday published a 54-page report accusing Boohoo of giving a “misleading impression” of the cashflow in its business.

Shadowfall alleged that Boohoo had overstated its free cashflow by £32.2m ($39.6m) in its latest set of accounts by not including tax charges and treating subsidiary PrettyLittleThing as a wholly owned investment. Boohoo owns 66% of PrettyLittleThing, with the remaining 34% owned by the son of Boohoo’s founder.

Boohoo’s stock lost 12% on Monday after the note was published. London-based Shadowfall disclosed it had placed a personal bet on the share price falling by short-selling — borrowing shares and then selling them in the market in the hope that the price falls before shares are bought back.

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Boohoo hit back at Shadowfall on Tuesday with a statement saying the group “strongly refutes the allegations made in the research note”. Boohoo said it gave “clear definitions” of how free cashflow was calculated and said its treatment of PrettyLittleThing in accounts was approved by auditors.

Boohoo also said it “strongly refutes any allegations of understating costs” in relation to PrettyLittleThing.

Shares in the Manchester-based retailer slipped 2.3% in early trade on Tuesday.

Boohoo is one of Britain’s highest-profile online fashion businesses. Founded in 2006, the company has become a stock market darling in recent years thanks to consistent sales growth. The business had sales of £1.2bn last year and is valued at £4bn by the market.

Boohoo is the latest in a string of British businesses to be targeted by short-sellers, who make money when share prices decline. Other recent targets include Pets At Home (PETS.L) and NMC Health, the former FTSE 100 healthcare business that ultimately collapsed earlier this year.