Boohoo shares slide as it warns about profit margins

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Sales soared 20% to £975.9million, but pre-tax profit fell 64% to £24.6million. (Photo: Getty)

Boohoo (BOO.L) fell out of favor with investors on Thursday as it warned profit margins would be lower than earlier forecasts for the year.

The online retailer, which has come under scrutiny in recent years over labor conditions in its supply chain, blamed a combination of heavy investment and rising costs on hampered performance.

Shipping costs, in particular, were £26 million ($35 million) above pre-pandemic levels, and margins were squeezed by wage inflation at its fulfillment centres.

New rules after Britain left the European Union also reduced profit margins from 57.8% to 53.6%, thanks to additional checks required at customs.

Sales in the six months to the end of August soared 20% to £975.9million as the online shopping boom fueled by the coronavirus pandemic continued, but pre-tax profit fell 64% to £24.6million.

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He expects pre-tax profit to be slightly lower for the full year, between 9% and 9.5% instead of the 9.5% to 10% range he had previously forecast. .

Total infrastructure spending is also expected to be around £275m this year, up from previous estimates of £250m.

Shares in London fell 10% following the news.

However, it has managed to double its market share in the UK and US since the start of the coronavirus pandemic, even as shoppers returned to the high street as lockdown restrictions were eased. Sales in Europe also fell 15% year-on-year.

Boohoo shares fell 10% that day.  Chart: Yahoo Finance

Boohoo shares fell 10% that day. Chart: Yahoo Finance

The fashion retailer said it was “confident” in its performance for the rest of the year, after heavy investment in marketing and the integration of new brands.

The company launched its new digital department store Debenhams in April, whose lines include fashion, beauty and homewares. Boohoo bought the Debenhams brand and website for £55million in January after the business collapsed into administration, causing around 12,000 job losses.

It also incorporated former Arcadia brands Dorothy Perkins, Burton and Wallis during the period, as well as moving two warehouses in Wellingborough and Daventry.

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“We are delighted to have doubled our market share in key markets such as the UK and US, to have significantly expanded our target addressable market through selective acquisitions and are excited about the global potential of all our brands,” said Managing Director John Lyttle.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “Not Boohoo’s best look. Sales momentum was a major disappointment to the market, with lack of holiday and festival demand hurting the important UK market. The fast fashion giant is also being held back by huge cost overruns in its supply chains.

“Higher wages for its workers, as well as well-publicized freight and shipping disruptions are all affecting profitability. These headwinds aren’t going to go away overnight, so it’s crucial that sales grow at a better rhythm.

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