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 firm’s 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 firm’s “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 company’s brand had been “limited” among consumers and would not continue into the long term.
Boohoo’S issues arose at the start of July when allegations surfaced that a factory in Leicester supplying the firm was paying below the minimum wage and not complying with coronavirus working guidelines despite the city being in lockdown.
The company has since attempted to repair its image, announcing an independent review in late July that it said will investigate whether the allegations are well-founded, if Boohoo was aware of the working practices at the factory and will also recommend improvements for the future.
Boohoo added that the purpose of the review is to consider its obligations and relevant duties of care in relation to the workforce in its Leicester supply chain.
Shares in the company jumped 5.4% to 329.6p in lunchtime trading.