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Boohoo on the right path following supplier scandals, says JP Morgan

Boohoo Group PLC (LON:BOO) is “on the right path” to start rebuilding confidence in its social responsibility among customers following recent supplier scandals, according to analysts at JP Morgan, who on Wednesday initiated coverage on the stock with an overweight rating and 416p target price.

The investment bank said the “material steps forward” in the online fashion firms supplier auditing process, already planned for 2020, have been accelerated and are backed by higher investment and third-party specialist support. Analysts added that they did not think the increased auditing processes placed the firms “critical “test and repeat” business model under threat” and will continue to provide a “strong competitive advantage” for the firm against its rivals.

READ: boohoo says independent review will look into whether laws were broken at factory in Leicester

“Boohoo has already demonstrated its ability to roll out “test & repeat” internationally with the majority of its sourcing (60%) now coming from overseas. If it were to shift the remaining UK portion to an international supplier base we think the cost benefit (c.140 [basis points] of gross margin) would likely offset any incremental clearance drag from (slightly) slower lead times (c.2 weeks). We see short term disruption as the biggest risk of a sourcing shift”, JP Morgan said.

The bank also said the damage to the companys brand had been “limited” among consumers and would not continue into the long term.

BoohooS issues arose at the start of July when allegations surfaced that a factory in Leicester suppRead More – Source