Boohoo (LSE: BOO) shares have been the AIM-darling, especially during the pandemic when the online retailer has seen a surge in sales. But the company is in the limelight again and not for the right reasons. New slave labour allegations against Boohoo have been made, which I’ll cover in detail.
Will I be buying Boohoo shares now? No, and here’s why.
Boohoo and its suppliers are facing the possibility of a US import ban due to allegations over the use of slave labour. In fact, Duncan Jepson, who runs the charity Liberty Shared, has claimed that Boohoo isn’t doing enough to stop forced labour in its suppliers’ Leicester factories.
There are now reports that the US Customs and Border Protection (CBP) has seen enough evidence to launch an investigation after petitions from the campaigning British lawyer.
If these allegations are true then I reckon there could be some severe implications for the company. If the US did block Boohoo’s products then its revenues would be hit. The company generates 20% of its sales from the region.
Boohoo’s reputation and investor confidence would also be hit. If the allegations are proven true, I’d expect the shares to fall significantly. Boohoo released a statement in response to the media commentary. The company stated it hadn’t been informed of any investigation by the CBP, and that it is confident that it’s meeting the CBP’s criteria on preventing forced labour. Boohoo also stated that it’s willing to work with any authority to provide assurance that its products meet the required standards.
I must admit, I’m not surprised over the latest allegation regarding Boohoo. But it makes me uncomfortable investing in the stock. The company has had its fair share of problems, which have yet to be resolved.
This isn’t the first time Boohoo has had slave labour allegations made against it. In 2019, it became the centre of a scandal relating to exploitation of workers at its suppliers’ factories in Leicester. As a result, the company carried out a series of measures to reassure investors.
One of these measures included hiring Sir Brian Leveson in November 2020 to provide independent oversight of its ‘Agenda for Change’ programme. This initiative’s focus is on key areas such as corporate governance and supply chain standards.
However, I’m not convinced that the company is doing enough from a governance point of view. So I won’t be buying Boohoo shares for now.
The CPB’s inquiry may confirm that Boohoo is complying with standards. But it makes me wary over investing in the shares in my portfolio.
I can’t deny Boohoo’s phenomenal revenue growth. I expect this to continue. The combination of its own brands along with the recent acquisitions should help boost sales. It recently purchased the Debenhams brand and website, but not its stores.
In its recent trading update, Boohoo expects full-year revenue growth to be between 36% and 38%, up from its previous guidance of 28% to 32%. I think this is very impressive.
But for me, I reckon the concerns over governance are an overhang on the stock. For now, I continue to monitor Boohoo shares.
Nadia Yaqub 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.