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Boohoo sales soar during Covid as it claims conditions in Leicester factories are improving after scandal

Jim Armitage
·5 min read
 (PrettyLittleThing)
(PrettyLittleThing)

Fast-fashion website Boohoo today reported surging sales during the recent Covid-19 affected months and claimed it was improving the way it sources its clothes in Leicester after last year’s working conditions scandal.

Sales which had been expected to surge 29% actually came in at 40% as shoppers snapped up its lockdown fashions.

Boohoo also upped its strong growth forecasts for 2021. Where it had previously said sales would jump 28-32%, it now predicts 36-38%.

In a sign of its confidence, the company said it was leasing out a new warehouse site in Wellingborough to serve its growing number of customers for the Nasty Gal, Karen Millen, Coast and Warehouse brands.

While it warned of some impact from the new Brexit export restrictions, it said it would cost only £2-3 million as its EU operations were fairly small and the extra overheads could be mitigated elsewhere.

This week, rival Asos, which is also opening new warehouse space, said it expected a £15 million hit in the first eight months of this year.

Boohoo was exposed by the Sunday Times for poor working conditions and pay at the Leicester factories it uses. Its reporter was told to expect he may only be paid £3.50 an hour against the national living wage of £8.72.

As a result of the scandal, Boohoo hired a QC, Alison Levitt, to investigate and her report gave a damning picture of a company that had put profit above people in its supply chain, highlighting a culture where little thought was put into the workers making its goods.

Retired judge Sir Brian Leveson was hired to oversee Boohoo’s “Agenda for Change” regime that it launched as a result of the scandal.

Today, the group said it had made strong progress in improving its supply chain.

In his first report, Sir Brian, famed for his tough investigation into Press standards, said the company had started well although areas identified by the Levitt review remained “work in progress if the group is to create and establish a critical ‘hearts and minds’ programme involving everyone in the buying chain."

He highlighted that KPMG, appointed to oversee some of the programme, had made clear that “senior management have engaged strongly” with the programme albeit different brand heads still have varying views of what the programme means. Failure by the board to articulate the strategy clearly posed a risk to its eventual success, he warned.

The company said it was going through its UK supply chain across the UK and internationally to replace bad actors with alternative ethical suppliers.

Mahmud Kamani, the executive chairman who was singled out for criticism in the Levitt report after giving his evidence while taking breakfast on a luxury hotel balcony, said he was “immensely proud” of the speed of change at the company and added: “We have lots to do still, but an exciting year lies ahead for boohoo and our multi-brand platform in 2021.”

Chief executive John Lyttle said the company had worked “exceptionally hard” in 2021 to cope with the Covid-19 epidemic and the acquisitions of the Coast and Warehouse fashion brands.

He said: “The group is in an excellent position entering 2021, which we expect to be another year of progress towards our goal of leading the fashion e-commerce market generally.”

Boohoo shares have opened down 1.5% percent despite this morning’s blockbuster figures and upgraded forecasts.

The shares reaction is probably down to a slightly cautious outlook statement from the group which talks of the uncertainties ahead as the Covid crisis unfolds.

Also, it will be tough for the company to beat the strong comparative sales figures from 2020 in the coming year.

Jefferies stockbrokers are impressed at the figures and recommend the shares as a Buy up to 500p from today’s 363p.

Lyttle said Brexit will cost it around £2-3 million in extra costs. That’s substantially less than Asos’s £15 million expected hit.

“We’re in the last two months of our financial year and we’re expecting a £2-£3 million headwind that will continue to next year. As we do generally, we’ll be looking to mitigate those,” he says.

He said Boohoo doesn’t sell as much into the EU as Asos.

Lyttle said the company had kicked out 64 suppliers so far who don’t meet its standards after the Leicester scandal.

He pointed out that Boohoo will not be able to address the problems of Leicester’s working conditions alone in what is a long-standing problem in the city for the textiles industry.

“We need others to do their piece but we will get it done,” he said of Boohoo’s own actions to improve its supply chain.

On the scandal, he says: “It was a difficult few months for us but it is about what need to be done to put it right.”

On trading, he said was he was cautious in his outlook statement to the market this morning because it was unclear how customer behaviour would change in the coming months.

“This is the first time we’ve gone into a total lockdown after a Black Friday. It is sensible to be cautious,” he said.

Explaining a fall in the group’s gross margin, he said it was not down to investing in fixing its Leicester supply scandal issues. Rather, it was about running more promotions to keep sales running strongly.

Party frocks and smart workwear which command higher prices and margins have also been replaced for cheaper loungewear during lockdowns.

Asked if he thought there would be a surge in sales from pent-up demand as lockdowns ease in 2021 he said:

“There will be times when the growth should be high because last year as we entered covid growth fell off but then came back really strong [as lockdowns ended].”

And that was without people going away for summer holidays and stocking up on swimwear and summer party clothes.

But he said it was hard to predict for 2021 because bars and restaurants could still be confined by some lockdown measures when they re-open.

“We have gained customers where we have had lockdowns and hopefully they will keep coming back,” he added.

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