The fast fashion group Boohoo has warned that full-year profits and sales will be lower than expected after being hit by more customers returning clothes, delivery disruptions and surging costs.
Shares in the online clothing retailer plunged 15% in response to its second warning in four months, despite its insistence that the current difficulties facing the business were mostly related to the pandemic and therefore “transient in nature”.
Boohoo said that while overall demand had grown since the first and second quarter, it was suffering the effects of global shipping delays, rising costs linked to the pandemic, and “exceptionally high” levels of returns linked to an increase in sales of dresses that forced the group to slash full-year expectations for sales growth to just 12-14%.
It was down from previous guidance of 20-25% sales growth in the year ending 28 February. The group said profit margins would also be hit by the return rates and lower than hoped for sales overseas.
“This reflects our expectation that the factors impacting our performance in the period persist through the remainder of the financial year, and recent developments surrounding the Omicron variant could pose further demand uncertainty and elevated returns rates particularly in January and February,” Boohoo said in a trading statement on Thursday morning.
In the UK, Boohoo said net sales were up 32% in the three months to November, compared with a year earlier, reflecting “exceptional” local demand. However, returned items were up 12.5% on an annual basis, and 7% higher than before the pandemic due primarily to selling more dresses, which are more fitted than the comfy clothing in vogue during the first year of the pandemic and so customers are more likely to buy several sizes and send some back.
The company’s acquisition of brands including Coast and Karen Millen, which sell higher priced dresses, has heightened the impact of those shopping patterns. That trend is likely to have continued into December, as Christmas and end-of-year parties are cancelled due to the spread of the Omicron variant.
Boohoo – which also owns the Debenhams, Burton, Wallis and Dorothy Perkins brands – is among a raft of retailers struggling during the pandemic due to global shipping delays. Some ships have failed to dock at ports due to local lockdowns or staff shortages, creating a ripple effect that has affected deliveries internationally.
However, the fast fashion group’s UK business has been partly shielded from those effects, due to local warehouse storage that has made it faster to ship clothing to British consumers.
“The group has gained significant market share during the pandemic. The current headwinds are short term and we expect them to soften when pandemic-related disruption begins to ease,” the Boohoo chief executive, John Lyttle, said.
“Looking ahead, we are encouraged by the strong performance in the UK, which clearly validates the Boohoo model,” he added. “Our focus is now on improving the international proposition through continued investment in our global distribution network.”
Caroline Gulliver, an analyst at Stifel, said: “With multiple profit warnings across the retail industry in recent weeks the factors behind Boohoo’s warning are not a surprise, but the magnitude of the slowdown and hit to [profit] margin is, given the confidence the company had three months ago.”
She said the problems were likely to continue beyond February as freight capacity had not bounced back as quickly as hoped and it could take at least a year for Boohoo’s US and European distribution centres, which would reduce the need for shipping from the UK, to be finalised.