It’s been a choppy first half for the Boohoo share price, after getting hit hard in July on reports that Jaswal Fashions, a factory in Leicester and a reported supplier to the company, was operating below the required standards as set by UK Health and Safety, and was also paying below minimum wage levels.
These revelations rather took the gloss of what had been a pretty impressive Q1, which saw a 45% rise in revenue a couple of weeks before, when the company also confirmed the acquisition of the online operations of Oasis and Warehouse for £5.25m. During the same period the company also acquired the remaining 34% minority shareholding in PrettyLittleThing.
Boohoo share price recovers as malpractice claims denied
Boohoo strenuously denied any knowledge of the malpractices outlined and promised an investigation, engaging Alison Levitt, a top QC, to investigate the claims around the supply chain and help restore the company’s battered reputation.
Since then the Boohoo share price has recovered somewhat, however the damage done to its reputation, along with the loss of a number of key social media influencers pulling their support for the brand, did see the appeal of the shares get a little tarnished. The company also saw its NastyGal and PrettyLittleThing brands dropped by Asos, Next and Amazon.
Increase in costs likely after independent review
Despite this negative publicity there doesn’t appear to have been a significant impact on the company’s group trading for the period ending 31 August, with the business seeing a boost as a result of the pandemic. Gross margins were slightly higher from the same period a year ago, up from 54.3% to 55%, however in light of recent events, this may well come down in the second half, if management are serious about dealing with the problems outlined in last week’s independent review.
An update on the findings of the independent review didn’t paint a particularly positive picture, highlighting significant shortcomings in the company’s supply chain. To their credit management have pledged to deal with all of the findings outlined in the report, which in turn will raise operating costs going forward. The rise in capital expenditure, to the tune of £80m to £100m, is likely to be part of this process, along with further investments being made in capacity in Sheffield and Burnley.
Revenue and profit climbs; guidance upped
Revenue came in at £816.5m, a rise of 45%, in line with the increase seen in Q1, while profit before tax came in at £68.1m, a rise of 51%. The company also saw a net increase in cash of £137.6m, though some of that was as a result of the recent share placing to fund future acquisitions.
In terms of the outlook, management were cautious, though we did see an increase in revenue guidance for the full year from 25%, to between 28% and 32%. This is still quite a step down from the increase seen in the first half of this year, even if it is a modest upgrade.
Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.