Boohoo bounce: Rollercoaster for investors as shares surge 30% after the fast fashion giant saw its value nearly halve amid sweatshop scandal
- Today’s sharp rise came after the shares fell another 14 per cent yesterday
- Boohoo has pledged to invest an initial £10million to stamp out malpractice
Boohoo’s share price surged by more than 30 per cent today as investors regained some faith in the troubled fast fashion giant.
Some investors have clearly taken the view that Boohoo can recover from its current difficulties despite a big hit to its image, and have jumped on the chance to buy shares for considerably less than a week ago.
This came after the stock fell another 14 per cent yesterday as it struggled to draw a line under the sweatshop slavery scandal.
On the third day of heavy selling on the stock market, the fast fashion giant launched an independent investigation led by a top barrister into its supply chain, and pledged to beef up its board with more directors.
Boohoo shares have surged back from the lows hit yesterday to sit just shy of 300p
Ashlee Simpson performs at a Boohoo event in New York City last year. Shares in the fashion giant plunged 14% yesterday as it struggled to draw a line under the sweatshop slavery scandal
It will invest an initial £10million to stamp out malpractice and said it has ditched two suppliers accused of employing staff on slave wages.
Investors were not convinced by the moves and another £465million was wiped off Boohoo’s market cap, leaving it valued at £2.8billion yesterday.
The sell-off took losses to 42 per cent before today’s rally.
That wiped more than £2billion off its value in three days. Founders Carol Kane and the Kamani family, saw their fortunes collapse by a total of £433million.
But in a rare sign of optimism, major investor Jupiter Fund Management increased its stake from 9.82 per cent to 10.32 per cent.
In a statement to the stock market, Boohoo said its board was ‘shocked and appalled’ by the accusation that its clothes were being made by staff working on £3.50 per hour.
Kamani playboys rage: media are making it ALL up
Two members of Boohoo’s billionaire founding family have accused the media of printing falsehoods about the sweatshop conditions in its supply chain.
Umar and Adam Kamani – sons of founder Mahmud Kamani – played down allegations over minimum wage violations and coronavirus.
Denial: Umar (pictured) and Adam Kamani – sons of founder Mahmud Kamani – played down allegations over minimum wage and coronavirus violations at Boohoo
Two suppliers have been accused of paying £3.50 to £4 per hour to make clothing for Boohoo, while breaking social distancing rules.
The board said it was ‘shocked and appalled’ by the claims.
But the Kamani family, who collectively own a 18.6 per cent stake, were putting out an entirely different message on social media.
Adam, 30, told his 607,000 fans online: ‘The last few days have been so hard reading and listening to the false allegations made by the media.’ His brother Umar, 34, said on Twitter: ‘Don’t believe everything you read.’
Suppliers have also been accused of flouting social distancing measures where staff felt required to come to work when they were sick.
It said: ‘We are committed to doing everything in our power to rebuild the reputation of the textile manufacturing industry in Leicester.
‘We want to ensure that the actions of a few do not continue to undermine the excellent work of many suppliers in the area.’
It said Alison Levitt QC, a leading business crime barrister, would lead an inquiry into the UK supply chain.
The firm will invest an initial £10million to ‘eradicate supply chain malpractice’, and it would accelerate a review of the way its supply chain is audited with Verisio and Bureau Veritas.
It claimed it had not found evidence of workers being paid £3.50 but said two companies had broken its ‘code of conduct’ and it had terminated their contracts.
But analysts said investors were not convinced. Russ Mould, investment director at AJ Bell, said: ‘The tide is turning. This is a clear statement from the company showing it is taking the matter very seriously. Unfortunately, the market doesn’t buy it.’
The firm is already fighting off a short-selling attack from UK hedge fund Shadowfall amid widespread concern about governance.
The fund said it was ‘scandalous’ that Boohoo paid £323million for a 33 per cent stake in Pretty Little Thing to a member of the Boohoo founding family in May.
Crimefighter who will investigate slave wages
Alison Levitt QC will lead the independent probe into Boohoo’s supply chain
The independent probe into Boohoo’s supply chain will be led by business crime barrister Alison Levitt QC.
The privately educated St Andrew’s University graduate headed up the business crime group at law firm Mishcon de Reya and now works at 2 Hare Court chambers.
She established its white collar crime and investigations department, specialising in the ‘grey area where civil fraud, regulatory procedures and criminal investigations overlap’.
Boohoo hopes she has the clout to win back trust in the supply chain from the market.
The firm will point to her ability to produce independent reports in big cases.
Between 2009 and 2014 she was the top adviser to the Director of Public Prosecutions, who for most of that time was Labour leader Sir Keir Starmer, taking calls on high-profile charging decisions.
She produced the influential report into Jimmy Savile which led to Starmer apologising on behalf of the Crime Prosecution Service for ‘shortcomings’ in deciding not to prosecute cases taken to Surrey and Sussex Police in 2007 and 2008.
In 2015 she called for a ban on naming sex abuse suspects, such as Lord Brittan, who was accused of being in a VIP sex ring by fantasist Carl Beech, until they are charged.
Boohoo has appointed deputy chairman and senior independent director Brian Small to co-lead the inquiry.
It called the transaction an ‘extraction of cash from the business to the family’.
Then in June Boohoo’s directors announced a £150million bonus plan for its bosses, including up to £50million maximum each for Kane and Kamani senior.
This followed plans to award chief executive John Lyttle with £1million and salary increases of between 18 per cent to 30 per cent for other board members.
Shareholder advisory Pirc said: ‘The reality is that the risks from poor labour practices were obvious. One group of employees who are getting paid above the minimum wage are the top brass. The contrast in fortunes could not be more stark’.
The supply chain review will check whether firms follow rules on minimum wage and social distancing, and that employees have the right to work in the UK.
Last week the National Crime Agency confirmed it would investigate Leicester’s garment trade after concerns over ‘human trafficking and modern slavery’.
But critics questioned why it has taken so long to act as four reports from 2015 to 2019 have exposed the dark side of the city’s clothing trade.
Boohoo buys between 75 per cent and 80 per cent of the city industry’s output. It uses UK suppliers so it can respond quickly to trends.