Boohoo shares fall 13% as online fashion retailer faces cash-strapped buyers

Boohoo, whose brands include PrettyLittleThing and Nasty Gal, is also recovering from a labour supply scandal in 2020 which sparked governance changes at the e-commerce retailer.

Boohoo shares plunged after the UK online clothing retailer warned that revenue growth may grind to a halt in the first half as cash-strapped consumers return more garments. 

Boohoo, whose brands include PrettyLittleThing and Nasty Gal, is also recovering from a labour supply scandal in 2020 which sparked governance changes at the e-commerce retailer.

The company also said it expects full-year sales growth in the low single digits, which would be the smallest increase since its initial stock sale in 2014.

Boohoo also predicted profitability will be much lower than its historical average. The shares fell 13% at one stage, having lost more than four-fifths of its value since a peak in 2020.

Selling clothes online is getting tougher as retailers worldwide piled into e-commerce during the pandemic as shoppers were stuck at home. 

Cut-rate discount upstart SheIn has been enjoying exponential growth, while Inditex, which owns Zara, is trying to keep its sourcing advantages against other retailers. 

H&M is also attempting to double its revenue by 2030. 

“We view Boohoo as vulnerable to further market share loss,” wrote Sherri Malek, an analyst at RBC Europe.

Sale projections slashed

The fast-fashion company slashed its sales projections twice last year as customers coming out of lockdown returned more clothes and the nascent US business was hit by supply chain disruption and freight costs. 

Over the last two years, revenue has grown 77% in the UK, 71% in the US, and 16% in Europe, according to chief executive John Lyttle.

“This year is about consolidation of the market share we’ve gained over the pandemic,” Mr Lyttle said.  “We are holding onto all of that market share growth,” he said.

The adjusted earnings margin will probably be 4% to 7% in the full year, Boohoo also said. Last year’s level was 6.3%.

The retailer said it has started a cost-cutting programme and is operating with lower levels of stocks. 

To help tackle the problem of freight costs and delays, the company is looking to buy its garments more closely to the point of sale.

About 60% of sourcing will come from territories including the UK, Italy, Turkey, and northern Africa, reducing the focus on China, Mr Lyttle said. 

Moving products out of China even using air freight is slow and very costly, adding weeks rather than days.

Amid surging inflation, Boohoo will raise prices on garments when competitors increase but “we want to remain competitive”, the CEO said. 

The company will announce an increase in employee wages in the coming weeks to recognise the burden of rising costs, he said.

Boohoo expects higher return rates to continue in the first half as customers buying outfits for special occasions are more likely to send them back than than those shopping for casual clothing during Covid. 

• Bloomberg