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Boohoo Earnings Show Little Hint of Sweatshop Scandal

Scandal? What scandal?

Boohoo brushed off months of negative publicity Wednesday by reporting a 51 percent bump in first-half profits and raising full-year forecasts mere days after an independent review found “widespread if not endemic” safety violations and underpayment of workers that make just under half of its clothes in Leicester, England, but absolved the e-tailer of criminal culpability.

Share prices, though down 3 percent this morning, have also by and large rebounded from the battering they took at the height of the imbroglio over the summer and are up 27.5 percent for 2020.

The ultra-fast-fashion e-tailer, which also owns the BoohooMan, PrettyLittleThing, Nasty Gal, Karen Millen, Oasis and Warehouse brands, said it expects group revenue for the year through Feb. 28, 2021, to grow between 28 percent to 32 percent—up from the 25 percent previously guided—buoyed by a burgeoning customer base that rose by 34 percent to 17.4 million in the past 12 months.

Pre-tax profits jumped to 68.1 million pounds ($87.9 million) as sales surged to 816.5 million pounds ($1.1 billion) in the six months to Aug. 31, far ahead of the 773 million pounds ($996.9 million) average of analyst forecasts.

In the United States, Boohoo’s revenues, which already made up 20 percent of the group’s profit margin last year, ballooned by 83 percent as the group continued investing in promotional activity to gain market share. Most of the improvement stemmed from Pretty Little Thing and BoohooMan, which “continued their exceptional growth,” the company wrote in its earnings report. Growth in the United Kingdom, Boohoo’s largest market, remained strong, ticking up 37 percent.

Boohoo credited its success in the face of record sales plunges and a decimated retail landscape to “significant” new customer acquisition in the first quarter as the housebound “migrated to the safety of online shopping during lockdown” and the company quickly responded to the work-from-home pivot by ramping up its offering of activewear, loungewear and tops.

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Shoppers are also padding their baskets by an additional 10 percent, particularly in overseas markets, which the company is attributing “largely to the impact of the pandemic.” Returns in the United Kingdom, United States and the rest of Europe, it noted, have been lower than in the previous half-year, “due to a different mix of product and consumer behavior during the pandemic,” though they’re gradually returning to normal levels in the second half.

CEO John Lyttle said he remains optimistic about Boohoo’s prospects and that it is “well-positioned to continue making progress toward leading the fashion e-commerce market globally.” The company has a plan of “continuous investment” in systems, infrastructure and technology to “ensure we offer an optimal online shopping experience and maintain high levels of operational efficiencies.” International expansion, too, will continue.

“The resilience of our business model and the commitment and flexibility of our colleagues and partners has enabled us to continue to operate our business successfully,” he said.

Bernstein analysts upgraded their 2020 sales outlook for Boohoo Monday, explaining in a note to investors that consumer backlash “has not been as pronounced as we expected, and the sector overall has fared well this summer.” Andrew Wade, an analyst at Jefferies, told clients that it was reasonable to expect the company’s cost of goods would rise as it improved oversight of its supply chain, though “there is clear confidence this can be absorbed, principally through the consolidation of the supplier base, larger order sizes and a tilting of the mix toward overseas-sourced product.”

Speaking to Reuters, Hargreaves Lansdown analyst Susannah Streeter said that Boohoo has “shrugged off the supply-chain scandal and strutted ahead with strong revenue growth across all its brands and markets,” despite evidence by Alison Levitt, a former legal advisor to the Crown Prosecution Service, that reports about low wages and unsafe conditions regarding its suppliers were “substantially true” and that Boohoo’s own monitoring of the “many failings in the Leicester supply chain” proved “inadequate” because of “weak corporate governance.”

Boohoo has since said that it has established a program to implement the recommendations of the report to make “substantive, long-lasting and meaningful change that all stakeholders in the Boohoo group will benefit from,” including appointing a new group director of responsible sourcing, developing and implementing a new set of purchasing principles for its buying teams, incorporating an electronic audit program to monitor status and capacity across its supply chain, and establishing a Garment & Textiles Community Trust to provide “startup funding and ongoing annual support” to workers.

But labor-rights advocates remain leery of Boohoo’s promises, and the stakeholders who enable them.

“Today’s financial results would appear to back up the investigation into Boohoo’s supply chain, which found the directors did not act quickly enough to address these issues because they prioritized the wellbeing of their shareholders over the fundamental human rights of their workers,” Carry Somers, founder and global operations director of Fashion Revolution, a grassroots group that sprang up in the aftermath of the 2013 collapse of Rana Plaza in Bangladesh, told Sourcing Journal.

“It’s very saddening to see the share price rise so much,” said Dominique Muller, policy director of Labour Behind the Label, which published a report in June linking Boohoo’s practices to the rise of Covid-19 infections at Leicester’s garment factories. “Because it’s not just the abuses going on in the factories. The whole report really showed up the poor governance, the lack of responsibility, the lack of monitoring and also the inaction that took place in Boohoo throughout. And I think there’s probably a big disconnect between NGOs like ourselves and investors and the consumers, most of whom remain quite young. And I think one of the challenges now is to make sure that the message gets out to those consumers.”

The one message that’s clear, Muller added, is that “investors really are not taking this seriously.”

“We have groups of investors who, like many brands, talk the talk; they have these principles and commitments and oversight,” she said. “But when push comes to shove, they’re more than happy to invest in companies, which, like this review has revealed, have a catalogue of disasters. And they seem to just be able to say, ‘Well that’s finished, let’s put the dust under the carpet,’ so to speak, and move on.”

If the conclusion from the report is that Boohoo didn’t break the law, Muller said, then it raises the question of whether the law needs to be changed.

“As we all know, you can be generally legal, but that doesn’t make you a good actor,” she said. “And I think the U.K. government needs to step up and really make sure that brands have financial penalties for not looking after their supply chain, not doing due diligence, not monitoring properly and not taking action.”

Boohoo sources some 40 percent of products in Leicester, which houses 1,500 factories employing 10,000 textile workers. In turn, Boohoo items account for 75 percent of Leicester’s garment output.