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Stock Watch

Is the Boohoo share price back in fashion?

Boohoo share price: a boohoo bag

It was a year of mixed fortunes for the Boohoo share price. A supply chain scandal rocked the brand, causing reputational damage, but both active users and revenues saw huge increases.

As the fashion retailer prepares to release its Q1 results, the Boohoo share price is languishing near its lowest point this year. Will the latest numbers offer a boost?

Boohoo share price still recovering after scandal

2020 was a year of two halves for Boohoo. The first was notable for a scandal around a supplier factory in Leicester which was operating below the required standards as set by UK Health and Safety, and paying below minimum wage levels. 

The scandal damaged not only the Boohoo share price, but also its reputation, as ASOS, Next and Amazon dropped the retailer’s Nasty Gal and PrettyLittleThing brands. There was also a damning inquest, led by Allison Levitt QC, which cited "inadequate" oversight of the factories in question, owing to ‘"weak corporate governance". The company accepted the findings.

In spite of the short-term brand damage, management appear to have drawn a line under some of these issues, and in March took the decision to drastically cut back on the number of suppliers it uses in its supply chain to 78, down from over 300, as it looked to shore up its battered reputation, and improve its oversight. 

To further reinforce its governance, the company announced that it would also be setting up a risk committee to oversee supply chain monitoring and compliance. Boohoo has also linked its £150m bonus scheme to improvements in the factories it uses, with the board being given the power to reduce the pay of 15 key managers depending on the success of the new Action for Change initiative.

Can Boohoo’s strong financial performance continue?

Putting to one side the supply chain issues, the last 12 months saw the business increase the number of active customers to 18m, a rise of 28%, as well as post a 41% boost in revenues to £1.75bn. This translated into a 35% increase in profit before tax to £124.7m.

As we look towards Q1, Boohoo’s guidance was a lot more cautious back in May with revenue growth expected to slow to 25%, below market expectations. The company also splashed out on former Arcadia brands, with a £25.2m purchase of Dorothy Perkins, Wallis and Burton. These newly acquired brands are expected to deliver about 5% of the predicted growth. 

This lowball number may well have been a way to temper expectations for shareholders ahead of the UK economy reopening. As lockdown restrictions are gradually lifted, fewer people will rely on online retailers for their fashion fix, and a return to the high street might impact Boohoo’s numbers.

Despite the success of the business, the Boohoo share price is still way below its pre-scandal highs of over 410p, currently sitting at around 320p. Will the latest results lead to an upturn? Find out as Boohoo releases its Q1 results on Tuesday 15 June at 7am.

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