Boohoo has warned of slowing sales growth and a squeeze on profit margins as disruption to deliveries and more competition from the high street combines with higher shipping costs and wage rises at its warehouses.
Shares in the online fast fashion specialist fell more than 15% on Thursday after it said pretax profits had sunk by almost 64% to £24.8m in the six months to 31 August, despite a 20% rise in sales to £975.9m.
John Lyttle, the chief executive of Boohoo, said the costs of sending goods to customers by air in the US had doubled, while shipping costs for products coming from east Asia were up three or fourfold.
Marketing costs also increased, partly as the company promoted its newly acquired brands, including Debenhams, Dorothy Perkins and Burton. Shoppers also returned more goods than last year as they shifted to wearing fitted items, such as dresses, from the comfy hoodies and jogging bottoms favoured during lockdown.
Reflecting similar warnings from the fashion and homewares retailer Next on Wednesday, Boohoo said higher costs would continue into the second half underpinned by higher freight costs and increased wages for its warehouse workers.
The company said wages were rising ahead of inflation but it hoped to offset that by bringing in more automation to cope with increased workload, rather than hiring extra staff.
“This year has been the most difficult year in terms of recruitment and wages,” Lyttle said, as there were fewer staff available from Europe.
The figures revealed a slowdown in sales growth in the last three months of the period – falling to 19% in the UK from 50% in the previous quarter, which the company partly blamed on a lack of events such as summer festivals, and limits on overseas holidays.
The slowdown was even more marked in the US, where growth dived to 9% in the second quarter from 40% in the first.
Boohoo said sales would increase by no more than 25% over the six months ahead, while profit margins would be no more than 9.5% compared with a top level of 10% previously hoped for.
Analysts said the sales performance was materially below expectations.
Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said: “This is not Boohoo’s best look. Sales momentum has sorely disappointed the market, with a lack of demand relating to holidays and festivals hurting the important UK market.
“The fast fashion giant is also being held back by enormous extra costs in its supply chains. Higher wages for its workers, plus the well-publicised freight and shipping disruption are all affecting profitability.
“These headwinds aren’t going to disappear overnight, so it’s crucial that sales get moving at a better pace.”
She said the difficulties came as Boohoo moved to correct problems in its supply chain in response to allegations of poor working conditions.
“The steps to make amends are to be commended, and it’s important they’re effective because Boohoo can ill afford another scandal,” Lund-Yates said.
Lyttle said the company had delivered “an excellent operational and robust financial performance” over the past 18 months when it had doubled market share in the UK and US. He added that Boohoo had also extended its potential customer base by acquiring new brands with a slightly different appeal.
Lyttle said consumer demand had improved through August in the UK, Ireland and France, with increased sales in September.
He expected freight costs to ease as more passenger flights, which carry commercial goods in the hold, were scheduled and shipping groups released more capacity.
“Entering the second half of the year, the group is well positioned to accelerate its growth, and our confidence in the group’s medium term targets remain unchanged,’ he said.
“We will continue to invest across our platform, people and technology as we look to further cement our position as a leader in global fashion e-commerce.”
