Boohoo is still riding high.
The England-based fast-fashion e-tailer reported Tuesday that its revenues grew 32 percent to 486.1 million pounds ($680.6 million) in the three months leading up to May, despite the loosening of the stay-at-home orders that supercharged the bulk of its sales at the height of the pandemic last year.
U.K. revenues ticked up 50 percent while those in the United States rallied by 40 percent, which more than made up for the shortfalls in continental Europe and the rest of the world, where sales tumbled by 14 percent and 15 percent, respectively. Overall, Boohoo’s earnings ballooned by 91 percent over the past two years, thanks to a doubling of sales in its top two markets.
Guidance for the year ending Feb. 28, 2022, remains unchanged, with revenue growth of around 25 percent and adjusted earnings before interest, taxes, depreciation and amortization margins expected to be in the region of 9.5 percent and 10 percent, said the company, which also owns the BoohooMan, MissPap, Nasty Gal, PrettyLittleThing, Karen Millen, Oasis and Warehouse labels, as well as the recently acquired Burton, Debenhams, Dorothy Perkins, and Wallis brands.
“I am delighted with our performance in the first quarter, particularly as it was always going to be challenging to produce strong growth rates on last year, when lockdowns around the globe drove such high traffic to online retailers,” CEO John Lyttle said in a statement.
Bernstein analysts noted Tuesday, however, that Boohoo’s stock was still trading 15 percent below “pre-sweatshop-scandal” levels, referring to allegations of health, safety and wage violations that consumed the e-tailer last summer amid an isolated spike in Covid-19 infections in the city of Leicester, where most of its domestic production is housed. A third-party investigation by Alison Levitt, a former legal advisor to the Crown Prosecution Service, later concluded that the reports were “substantially true” and the company’s own monitoring of the “many failings in the Leicester supply chain” proved “inadequate” because of “weak corporate governance.”
In the report’s aftermath, Boohoo rolled out its so-called Agenda for Change program, an overhaul of its business practices overseen by accountancy giant KPMG and retired judge Brian Leveson.
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Leveson said in a progress report, also published on Tuesday, that Boohoo has not only taken Levitt’s recommendations “extremely seriously,” but it has also “expanded its determination to develop and demonstrate a ‘gold standard’ in relation to the supply chain to all aspects of ethical, transparent and sustainable business practice.”
Boohoo’s responsible and ethical trade teams are focused on the “continuous assessment” of the e-tailer’s U.K. manufacturing base and demonstrating a level of due diligence that “may well go beyond that which is undertaken by other retailers or in other industries,” he added. As a result, a “small number” of businesses that were initially approved have been removed from the list of suppliers, while new ones are in the process of being onboarded. A global list of suppliers is set to be published in September.
“My experience has demonstrated that any transformational change needs continuous investment of time and effort in order to embed the imposed business changes as permanent. That will be even more difficult in a business as dynamic as Boohoo,” Leveson said. “All those to whom I have spoken have demonstrated real enthusiasm for the Agenda for Change and pride in what it seeks to achieve. The progress and commitment are evident and has been the subject of positive comment from a number of those interested and engaged in the problems that Leicester has evidenced.”
Boohoo has also joined the Fast Forward initiative, a program that began in 2014 to address concerns about exploitative practices in U.K. apparel manufacturing. It will be incorporating the program’s auditing processes into its domestic supply chain over the next 12 months, until which all suppliers must conduct their own audits through either Verisio or Bureau Veritas. Fast Forward is being utilized by retailers such as Asos, Fred Perry, Marks & Spencer, New Look, Next and River Island, in addition to Debenhams, which Boohoo snapped up last year. Its “forensic audit” process, it says, ferrets out audit evasion and hidden exploitation, while assessing adherence to employment laws and ethical labor standards.
In some countries, Leveson said, the company will be engaging with additional compliance representatives to “check up on these suppliers in the same way that compliance teams visit those based in the U.K.”
“I remain encouraged by the determination of all to address the issues which were exposed last year and to both promote and embed a new way of working to the highest ethical standards,” Leveson said. “In relation to the U.K. supply chain, Boohoo identified that the critical challenge was (and will remain) to ensure that the new approach is followed and to embed the change in the business culture. Progress is evident and the tone from the top is both clear and real.”
Still, Boohoo is poised to face a shareholder row at its annual meeting later this week after Institutional Shareholder Services (ISS) and Glass Lewis, two leading proxy advisers, urged investors to vote to oust co-founder and executive director Carol Kane, citing concerns over her high compensation and “direct role” in the company’s “inadequate governance practices.”
In a note to investors, ISS said Kane “is considered ultimately accountable for the failures in governance, stewardship and risk oversight, which have caused significant reputational harm to the company in connection with the poor working conditions and pay in the company’s supply chain in Leicester.”
Glass Lewis has also told shareholders to reject Boohoo’s contentious remuneration proposal, saying that the incentive scheme could result in “excessive payouts” based on the performance of Boohoo’s share price, “which may primarily reflect market forces rather than company or management performance.”
Introduced last year, the scheme would see the firm’s bosses share a maximum payout of 150 million pounds ($209.8 million) if Boohoo’s market value skyrockets by two-thirds to 7.55 billion pounds ($10.6 billion) by June 2023. After the plan, which was introduced without a shareholder vote, was widely criticized, Boohoo announced last month that the bonuses will only vest if critical governance and sustainability targets are achieved during the period.
“We acknowledge that the company has introduced an underpin to the awards under these schemes, whereby vesting is subject to the committee being satisfied that the Agenda for Change program has been successfully implemented over the performance period,” Glass Lewis said. “We believe this is a positive direction of travel in terms of aligning the awards with shareholders’ interests; however, [we] remain concerned with the underlying nature of the plan.”