Boohoo (BOO) shares were rattled by a report published by short-seller ShadowFall, which accused the online retailer of flattering its free cash flow in its accounts.
ShadowFall, which has a short position in Boohoo, asserted that the group misrepresented its free cash flow by £32.2m, or 65 per cent, in 2020. It claimed that since 2014, the retailer has overstated its cumulative free cash flow by 67 per cent. As well as not subtracting corporate tax paid as part of its free cash flow calculation (Boohoo does this further down its cash flow statement to calculate ‘net cash flow’), ShadowFall observed that Boohoo treats fashion retailer PrettyLittleThing.com’s (PLT) free cash flow as if it were 100 per cent owned. Boohoo owns two-thirds of PLT.
In 2016, Boohoo acquired a 66 per cent stake in PLT, whose chief executive is Umar Kamani – the son of Boohoo co-founder and chairman, Mahmud Kamani. Boohoo has an option to acquire the remaining 34 per cent of PLT until February 2022. If the group elects not to exercise this option, a dividend will be paid out of PLT’s reserves to all PLT shareholders, including Boohoo. Shadowfall believes that PLT’s non-controlling interest (i.e. Umar Kamani) could be due at least £77m in dividends by 2022.
Boohoo said that the report was “without merit”, adding that its cash flow statement “has full transparency with all individual elements of cash flow itemised for all to see”.
