Fast fashion retailer Boohoo warns of profit margins as costs rise

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Fast fashion retailer Boohoo has warned that its profit margins will be lower than its previous forecast for the year as a combination of higher investment and costs, from freight to wages, take their toll.

The British online group said on Thursday that earnings before interest, tax, depreciation and amortization would represent 9-9.5% of sales, against a previous forecast of 9.5-10%.

Shares of the company fell more than 12% in morning trading Thursday. Asos, another online fashion retailer that targets a slightly older clientele, was down 5%.

Although Boohoo has previously flagged the likelihood of slower sales, chief financial officer Neil Catto said the second quarter in particular saw “extremely volatile demand” due to uncertainty surrounding events such as festivals and overseas holidays in the UK. Sales growth in its largest market fell from 50% in the first quarter to 19% in the second.

Growth also slowed even more dramatically in the United States, from 43% in the first quarter to 8% in the second, while sales in Europe and the rest of the world – affected by delays in the delivery of products to customers – fell in both periods. .

“But at the end of the day, we look at that and say, actually, we’re 73% bigger [in sales terms] than two years ago and we have doubled our market share in key markets,” added Catto.

The company also incurred significant Covid-related costs, which Catto said had slumped profits by £26million in the six months to August 31. Most of them were related to transport and caused margins to fall to 8.7% from 11% during the same period. one year ago.

Return rates have also returned to more normal levels. During the shutdowns, Boohoo has benefited from a shift to casual wear among customers – clothes that are less likely to be returned.

Andrew Wade, an analyst at the retailer’s house broker Jefferies, cut his full-year sales growth forecast to 22% from 27 and the full-year profit estimate of 8% to £196m . It lowered its profit forecast for the following year by the same increment, citing the “expected fallout from high costs”.

Capital expenditure will also be slightly higher than expected, at £275m, as Boohoo continues to invest in new distribution capabilities and integrates the brands it has acquired over the past year, including Debenhams and Burton in the UK.

Chief executive John Lyttle also echoed comments from his Next counterpart, who warned on Wednesday that warehouse workers were in short supply as well as truck drivers.

“There is no doubt that there is a challenge. . . we are seeing an increase in the demand for labor and a decrease in the quantities of labor available compared to previous years,” Lyttle said, adding that Boohoo is investing heavily in automation to offset this.

But Lyttle said the sales outlook for the second half was better as students returned to college, children returned to school, more people returned to office work and socializing around Thanksgiving , Christmas and New Year resumed.

“All of these events that hardly happened last year will benefit all of our brands,” he said, adding that the acquisitions made over the past 18 months have significantly increased the group’s potential.

“Two years ago, we were only 16 to 24 years old with our young fashion brands. The new brands we have acquired expand our addressable market from approximately 100 million people to 500 million.

@jonathaneley

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