The stock market value of the online fashion firm Boohoo has overtaken Marks & Spencer thanks to strong Christmas sales, while M&S was warned it faces a possible downgrade in its investment rating to junk status.
Sales at Boohoo jumped 44% in the weeks before 25 December, while M&S suffered fresh setbacks. Last week the high street stalwart revealed it had bought too many tight-fitting jeans and chinos.
Boohoo’s shares climbed 5% to 334p on Tuesday. The stock has risen more than 70% over the past year, boosting the Aim-listed company’s market worth to £3.9bn.
The update came as Moody’s credit ratings agency said it was considering cutting M&S’s investment rating to junk, sending its shares down 2% to 185p and pulling its market capitalisation at £3.6bn.
M&S, which is 136 years old, was demoted from the the FTSE 100 index of leading UK businesses last year.
Boohoo, which was founded in Manchester in 2006, has become a mecca for teenage and twentysomething shoppers who buy on their phones and want inexpensive clothing delivered quickly. In addition to the eponymous label, the company also owns PrettyLittleThing and Nasty Gal.
Boohoo’s chief executive, John Lyttle, said the group enjoyed “record trading” in the last four months of 2019. “All of our brands have performed exceptionally well and delivered strong market-share gains,” he said as the group increased its sales and profit expectations for the year to 29 February.
At a time when many established high street brandssuch as M&S, Topshop and New Look are struggling, Boohoo has succeeded, thanks in part to its use of social media influencers, instead of glossy magazines, to reach shoppers.
Sales were up 44% to £474m over the four-month period, it said. Sales of the Boohoo brand rose 42%, with PrettyLittleThing up 32% and Nasty Gal up 102%.
It has also acquired a series struggling brands, including MissPap and most recently Karen Millen and Coast. They were “showing great promise” under Boohoo ownership, Lyttle said, and were helping to broaden the group’s appeal.
Updating the City last week, the M&S chief executive, Steve Rowe, said clothing sales at established stores were down 1.7%. Its food halls had fared better, with sales up 1.4%, but that success was overshadowed by higher levels of waste, which hit profits.
Moody’s did not alter M&S’s current Baa3 rating – which is one rung above junk status – but changed the outlook from “stable” to “negative” to reflect its struggle to stabilise profits, which have been falling for several years.
Moody’s senior credit officer said the M&S management team faced “significant” headwinds in their attempt to reverse falling clothing sales and improve profit margins in the food business.
“The rating agency believes overall profitability [at M&S] may continue to slide beyond the current fiscal year,” David Beadle said. “If this were the case Moody’s would likely consider the company’s credit profile to be incompatible with the current investment grade rating.”