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If you like your fast fashion accessorised with a tinge of court room drama, then Boohoo (BOO) should set your pulse racing.
Boohoo’s first-half results briefing on Wednesday could very well prove to be high drama.
While the fast fashion retailer had been rising high on the back of its booming online sales and giving old rival ASOS a run for its money, this summer’s allegations surrounding its Leicester supply chain are definitely not a good look.
Back in July a Sunday Times newspaper investigation that alleged workers making garments for Boohoo’s Nasty Gal brand were paid as little as £3.50 an hour at a factory displaying the name Jaswal Fashions, saw its shares slide.
And it’s not the first time Boohoo’s name has been associated with claims of labour exploitation in Britain’s garment industry. An inquiry in 2018 was also linked with the fast fashion retailer.
This time around Boohoo said it had found some inaccuracies in the Sunday Times report, but it immediately launched a review to “identify areas of risk and non-compliance”, strengthen its future compliance and “provide stakeholders with comfort that similar allegations will not recur in the future”. It said it was also investing £10 million to “eradicate supply chain malpractice”.
Well, an update on the findings of that review, led by lawyer Alison Levitt QC, is expected on Wednesday, when Boohoo releases its first-half results.
This was never going to be anything less than high profile. Home secretary Priti Patel has weighed in, calling on Boohoo to work with its suppliers to ensure workers are protected, following allegations that some are paid less than the minimum wage.
In a letter to the company Ms Patel said she was “deeply concerned” by “any potential role the fast fashion industry may be playing in fuelling alleged criminal, inhumane and abusive practices in Leicester’s garment sector”.
And The Ethical Trading Initiative, which is an alliance of companies, unions and NGOs that monitors supply chains, whose members include retailers such as ASOS, Gap and Marks & Spencer, has refused to give evidence to Boohoo’s investigation, criticising the focus of the inquiry and questioning its independence.
In a statement at the end of August it said that the “detailed systemic abuse” in the UK’s garment industry was being fuelled by retailers’ purchasing and costing practices, as well as a lack of responsibility towards factory workers.
Back in June, before all this broke, things had all been going so well for Boohoo. For the three months to the end of May, revenue jumped 45% to £367.8 million and the company said it expected annual performance to beat market expectations.
The company also announced the acquisition of Oasis and Warehouse, for £5.3 million in cash from Hilco Capital. For the current financial year ending 28 February 2021, Boohoo said it expects to deliver another year of “strong” profitable growth, and also remain ahead of market expectations.
Boohoo is not alone. Fellow fast fashion company Quiz (QUIZ) faced the same allegations over its Leicester workforce being paid below the minimum wage in July too. But maybe Wednesday’s announcement will start to draw a line under this insidious practice.
Brokers haven’t updated their recommendations since the summer; presumably waiting instead for an update on Wednesday and a look at the prospects going forwards.
So Barclays Capital remains overweight, but has cut its price target from 470p to 350p. Credit Suisse is neutral on Boohoo.com but has raised its price target to 440p, from 250p, while Bernstein says the shares are an outperform, but has cut its price target to 350p from 480ps.
Another stock to watch in the week ahead is Greggs (GRG), the high-street bakery chain.
Greggs has already told how it swung to a loss as the impact of shuttered stores hit sales. Its next update on Tuesday will give us a clearer picture of where it’s at right now.
For the six months to the end of June, the company reported a pre-tax loss of £65.2 million, compared with a profit of £36.7 million during the same period last year, as sales slumped to £300.6 million from £546.3 million.
While Greggs had been on a (ahem) roll, opening stores, launching new products and expanding its range to drive-throughs and evening meals. It was even preparing to go head-to-head with fast food giant McDonalds over its breakfast offering. But that was all before the pandemic struck. Over the year, the company said it now expected to open about 60 shops and close 50.
Back in July at the time of the half-year results, trading was back at 72% of 2019 levels, but it warned then that it wouldn’t be able to return to pre-pandemic patterns while customers are required to social distance.
Brokers are at odds over Greggs’ prospects. Last month Jefferies International initiated its coverage of Greggs with a buy rating and price target of £21.75. Peel Hunt went the other way, repeating its sell rating and cutting its price target from £15 to £12.
Important information - The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Please note, past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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