In the past week or so, the Boohoo (LSE: BOO) share price has bounced back about 17%. This started before an investigation commissioned by the company saw its findings being published but carried on after the review results came out. You would expect that Boohoo was entirely exonerated. But this isn’t quite the story.
Not to blame but should have known
The investigation, headed up by Alison Levitt QC, concluded that the allegations of poor working conditions and low pay are “well-founded and substantially true”. The findings did say however, that Boohoo didn’t deliberately allow these conditions and pay. Nor, it said, did it intentionally profit from them or break any laws.
Not exactly a resounding result for the company, but not too negative either. The report said oversight of its supply chain had been “inadequate for many years”. It seems surprising then, that the Boohoo share price has been bolstered so much by somewhat lukewarm findings.
I think that this is mainly because many investors and market analysts still feel Boohoo is something of a golden child. Just like my Foolish colleague Alan Oscroft, I too am sceptical when I see shares in a “can-do-no-wrong phase”. This report certainly means things aren’t as bad for Boohoo as they could have been, but problems in its supply chain are still not good.
In all honesty however, I don’t see the Boohoo share price being determined by this in the long run. To put it simply, it’s going to have bigger problems. These problems of course, come in the form of Covid.
Bigger problems for the Boohoo share price
Any second wave and further lockdowns, I think, will pressure the Boohoo share price, even though it prospered during the first lockdown and could do so again.
Let me explain. Christmas is on the horizon and is a key time for most retailers. I still generally think that people don’t buy clothes to stay at home. However, with companies like Boohoo this may not exactly be true.
It’s a somewhat simplistic view of its customer base, but Boohoo appeals to young, fashion-conscious people who want the latest trends at affordable prices. As mentioned, there was already evidence from Boohoo (and Asos) during the previous lockdown that sales weren’t as weak as I would have thought.
It seems its customers still want the latest clothes, either for when they can go out again, or for the limited social contact they’re allowed. Local lockdowns and social distancing rules will presumably be less stringent that the full lockdown earlier this year. I suspect Boohoo will still see sales doing well.
So why am I worried? One overriding concern, for almost all stocks, is if we go into recession. If the economy starts to falter, I suspect many of Boohoo’s customer base will be losing jobs. Younger people are less likely to be in more secure positions.
I’m certainly keeping an eye on the Boohoo share price, but at the moment I think it’s just too high, with too much risk. I will be interested to see how Boohoo sales do in the next few months. Then I may be looking for a nice dip to stock up.
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Karl has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.