Liberum downgrades Boohoo, slashes price target

An undercover investigation by The Sunday Times found that workers at a factory making clothes for the retailer were being paid as little as £3.50, which is well below the minimum wage. It also found that Jaswal Fashions was operating during the localised coronavirus lockdown without additional hygiene or social distancing measures in place.

"Weekend press articles highlighting breaches in Leicester’s clothing factories have directly implicated Boohoo," said Liberum. "These allegations are just that, at this stage, and this is not the first time Boohoo has had negative press on ethical, social and corporate governance issues, such as failing to meet National Minimum Wage levels.

"With an investigation requested by the Home Secretary into the matter, we think Boohoo should show leadership and once and for all deal with these concerns head-on."

Setting up an independent team to investigate, then formulating future structures for enhanced compliance, are some of the ways to start getting ahead of the bad news, Liberum said, adding that broader corporate governance concerns may well arise from this.

"While we are huge fans of Boohoo’s strategy, with concerns on corporate governance and ethics escalating, the outlook for the shares becomes less certain," it said.

Boohoo put out a statement earlier on Monday in response to the allegations, saying it will investigate alleged illegal practices at the Leicester supplier and insisting it would end relationships with any suppliers not acting within its code of conduct.

"If as observed and reported by the undercover reporter", working conditions at Jaswal Fashions "are totally unacceptable and fall woefully short of any standards acceptable in any workplace", it said.

The company said its early investigations have revealed that Jaswal is not a declared supplier and is also no longer trading as a garment manufacturer. "It therefore appears that a different company is using Jaswal's former premises and we are currently trying to establish the identity of this company.

"We are taking immediate action to thoroughly investigate how our garments were in their hands, will ensure that our suppliers immediately cease working with this company, and we will urgently review our relationship with any suppliers who have sub-contracted work to the manufacturer in question."