Boohoo upgrades profit forecasts amid scandal over working conditions in Leicester factories

Getty Images Online fashion giant Boohoo today pledged to make “substantive, long-lasting and meaningful change” to its business following last week’s damning report into the low pay scandal at factories it uses in Leicester. However, questions are bound to arise about the company’s practices after it today reported a jump […]

Getty Images
Getty Images

Online fashion giant Boohoo today pledged to make “substantive, long-lasting and meaningful change” to its business following last week’s damning report into the low pay scandal at factories it uses in Leicester.

However, questions are bound to arise about the company’s practices after it today reported a jump in profit margins in the UK from 50.3% to 52.1% in the six months to 31 August despite having to invest in getting its staff working from home.

Analysts at City broker Liberum yesterday queried whether it would be able to sustain such high margins while also ensuring fair pay and working conditions in its supply chain.

Boohoo today said its new policies of compliance would not damage its lucrative business model of “test and repeat”, where it uses small trial runs of items, then rapidly produces more from its Leicester supply chain if the lines prove popular.

Neither lead times nor “financial expectations” would be affected by the improvements it was planning, it said.

Nowhere in its capital spending plans today did it mention spending money on improving conditions or monitoring of its supply chain.

Boohoo enjoyed a record half-year as people locked down at home flocked to its websites such as PrettyLittleThing and NastyGal to buy cheap fashions. Its customer numbers jumped by a third to 17.4 million, and shoppers bought 10% more items per basket.

That drove half-year profits up 51%, from £45.2 million to £68.1 million on revenues of £816.5 million against £564.9 million before.

Looking ahead, it upgraded its revenue growth targets from 25% to 28%-32% for the full year. That boosted its shares 3% to 399.20p in early trading.

The second half of the year would see it invest in more automation at its Sheffield and Burnley plants and big IT projects to boost efficiency, it said.

It warned that, while the second half of the year had started well, “At this stage we feel it is prudent to continue to plan for a period of economic uncertainty in the second half of the financial year, including possible reduced consumer spending.”

Boohoo said it would work to make its ordering more predictable to help suppliers manage the loads better.

In the six months, it reported a 37% leap in sales at its UK operations as shoppers flocked to its sites to top up their casual work-from-home wardrobes with activewear, loungewear and tops.

The simple nature of the items sold meant fewer returns and the group reduced advertising spend to boost profits.

Europe was also strong despite restrictions on movement which hit several countries.

BoohooMAN and NastyGal were particularly strong in Europe and in the US, where Boohoo has been investing heavily in marketing to boost its share of the market.

Read more

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