The release of an independent report into a supply chain scandal at online fashion retailer Boohoo (BOO:AIM) sets the shares off on a big relief rally, rising 11.3% to 361p on signs the company has clear plans to fix its problems.

The probe concluded the company did not deliberately allow poor conditions and low pay to exist within its supply chain.

The report identified 'significant and clearly unacceptable issues' in the company's supply chain, but stated that the company had already taken the steps to remedy problems in its Leicester supply chain nearly a year ago. Boohoo said it pledged to implement recommended improvements outlined in the review.

Alison Levitt QC, who was appointed to conduct the independent review, said in the report she was ‘confident that the adaptations which Boohoo should make involve a relatively easily-achieved realignment of its priorities and governance systems and that the board should not feel discouraged. It has already made a significant start on putting things right’.

‘NOT YET OUT OF THE WOODS’

Shore Capital analyst Greg Lawless isn’t convinced the company is completely clear of the scandal yet. ‘Overall the review recommendations are measured and at a first glance look appropriate. We believe that investors will welcome that the company is planning to implement the recommendations in full. Boohoo recognises that it needs to change and believes that it can successfully imbed the measures without impacting lead times or financial expectations.

‘As we have highlighted its sourcing model continues to be under scrutiny and these could still have implications and pressure on gross margins.

‘In our view, the costs of sourcing from Leicester will continue to rise given the costs of implementing these measures. Whilst this is a step in the right direction following the Sunday Times expose of working practices Boohoo is not yet out of the woods and we look for further clarity on wider investigations by other authorities in the UK before giving the company a clean bill of health.’

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Issue Date: 25 Sep 2020