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Will Boohoo's share price recovery continue?

Will Boohoo's share price recovery continue?

Boohoo’s share price appears to be on an upward curve following a sharp move lower last summer, on the back a report of unethical and illegal practices being carried out by a third-party supplier.

Boohoo share price recovers from supply chain report

The Boohoo share price took a severe knock in July, plummeting 53% from a 52-week high of 433.50p on 17 June, to 205.00p just a month later on 16 July. The AIM-listed stock has made a fairly steady recovery since then, after the online fashion retailer launched a full independent review of its supply chain.

The review, led by top QC Alison Levitt, highlighted significant shortcomings in the company’s supply chain, concluding that Boohoo’s monitoring of the factories was “inadequate”. However, the report also found that there was no deliberate wrong-doing on the part of Boohoo. In response to the investigation, the company has overhauled its supply chain. This should help to restore the group’s image, but is also likely to raise operating costs going forward.

Boohoo is perhaps not completely out of the woods yet though, and there is expected to be a further update on the findings and progress in overcoming the issues in Boohoo’s Q3 update on Thursday. Last month, Boohoo hired PKF Littlejohn as new auditors, following the resignation of PwC in October. PwC's auditors had overseen and approved the company's records, including the dubious supply chain issues, over the previous seven years.

Boohoo half-year results on trend

The online fashion house was already growing in popularity before the pandemic struck, as fashionable brands and relatively low price tags led to high demand from millennials in particular.

The pandemic actually meant a double victory for online retailers: not only did they see a surge in business, but their traditional high street competitors were held back by the lack of footfall, as a result of the government-imposed lockdowns.

This backdrop helped Boohoo post a strong set of figures for the first six months in late September, announcing a significant revenue increase of 45% to £816.6m, and a pre-tax profit jump of 51% to £68.1m.

The retailer performed well across a number of its divisions. The UK unit increased revenue by 37%, and the international business registered an impressive 55% rise. Boohoo’s overseas business now accounts for 47% of total group revenue, up from 44% last year.

Will impressive figures continue in Q3?

In the first full set of quarterly results since the scandal broke, analysts will be looking to see whether the unwanted media coverage has had a negative effect on sales, which grew by 43% in the same period a year ago.

Boohoo issues its third-quarter earnings update on Thursday 14 January at 7am.

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