Boohoo issues profit warning as shoppers cut back on clothes

The stock has fallen about 70% this year to around the lowest since 2016.
Boohoo issues profit warning as shoppers cut back on clothes

Shoppers are tightening their purse strings in the UK, Boohoo’s home market, as inflation soars to the highest in four decades.

Boohoo Group cut its profit guidance for the year as soaring energy and food bills stopped consumers from splashing out on clothes and shoes.

The British online fashion retailer now expects an earnings margin of between 3% and 5%, compared with previous guidance of 4% to 7%. Boohoo said Wednesday that revenue dipped 10% in the first half, and is expected to keep falling due to inflation and weaker consumer demand.

Boohoo, whose other brands include PrettyLittleThing and Nasty Gal, reported its first-ever UK sales decline in June as the cost-of-living crisis adds to supply-chain woes and waning pandemic consumer trends. The company also cut its sales projections twice last year and is recovering from a labour scandal in 2020 which sparked governance changes.

The stock has fallen about 70% this year to around the lowest since 2016.

Shoppers are tightening their purse strings in the UK, Boohoo’s home market, as inflation soars to the highest in four decades and as new Prime Minister Liz Truss’s emergency measures have yet to ease the load on consumers. Sales in the UK, which accounts for 62% of group revenues, declined by 4% on the prior half year, in part due to a much higher rate of product returns.

A recent report from the British Retail Consortium and KPMG said clothing sales in the UK were “sluggish” in August and shoppers are pulling back on any spending that isn’t essential.

Further afield, Boohoo’s performance in the US was also below expectations with revenue dropping 29% on the prior half with revenue also down 2% in the rest of Europe.

Boohoo started charging customers £1.99 (€2.22) for returns this summer, following Zara owner Inditex SA imposing fees for online returns to tempt customers back into its brick-and-mortar stores. It reiterated Wednesday that return rates are “up significantly” from a year ago and higher than pre-pandemic levels.

-Bloomberg

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