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Following allegations of poor working conditions and low pay at one of the Leicester factories used to supply boohoo clothes, boohoo has launched an independent review of its UK supply chain.
boohoo is “shocked and appalled” by the findings, and has terminated contracts with all third parties associated with the factory in question. It highlighted about 40% of its products are made in the UK, because this allows further flexibility and the ability to react quickly to changes in trends, rather than a cost benefit to the business.
The group has pledged an initial amount of £10m to eradicate supply chain malpractice. It will provide an update on the supply chain review at Half Year results in September, ahead of a wider Sustainability report alongside Full Year Results next spring.
Two further Non-Executive Directors are being recruited to improve independent oversight on the board. Particular consideration will be given to candidates with Environmental, Social and Governance (ESG) experience.
The shares fell 2.4% following the announcement.
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Trading details (figures at constant exchange rates) 17 June 2020
First quarter revenues rose 45% to £367.8m, excluding the impact of exchange rates. That reflects strong growth across all geographies, especially the US.
The group now expects full year revenue growth of around 25%, better than current market expectations.
Alongside the trading statement boohoo announced the acquisition of the online businesses, and all associated intellectual property, of Oasis and Warehouse for £5.25m.
The biggest improvement in first quarter revenue came from the US, which reported an 83% rise to £92m. The UK, which is still the biggest region by sales, posted a 30% increase to £183m. In the Rest of Europe revenue was up 65%, reaching £63.4m, while Rest of World revenue rose 22% to £29.4m.
boohoo said there was strong underlying growth across the boohoo, Pretty Little Thing and Nasty Gal brands. More recently acquired names Karen Millen, Miss Pap and Coast have been integrated onto boohoo’s platform and “continue to trade strongly”.
Gross margins rose from 55% to 55.6%, helped by the group’s flexible supply and manufacturing processes. This allowed it to react quickly when lockdowns hit, and categories like loungewear became more popular.
Oasis and Warehouse’s online operations generated revenues of £46.8m in the last financial year, and will be integrated into the business over the coming months. boohoo is actively considering further acquisition opportunities, with a number of prospects “likely” to emerge in the coming months because of the challenging conditions.
The group finished the quarter with over £350m of net cash.
Looking ahead, full year underlying cash (EBITDA) margins are expected to be between 9.5-10%. This will depend on the extent of discounting in the sector as well as the effects of general trading uncertainty. Capital expenditure will be £60m – £80m, compared to £45.6m last year.
boohoo key facts
- Current 12m forward price to earnings ratio: 31.2
- Average 12m forward price to earnings ratio since listing (March 2014): 42.9
- Prospective yield: boohoo doesn’t currently pay a dividend
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