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December 16, 2021

Boohoo sounds profit warning on surging returns, supply issues

UK online fast fashion retailer Boohoo Group has warned sales and profits are likely to be hit by a surge in returns and supply chain challenges including delivery delays and higher shipping costs.

By Hannah Abdulla

In its trading update for the first three months to 30 November, Boohoo said it has seen gross demand growth in the period exceed that of the first and second quarters but expectations on sales and profit for fiscal 2022 will be lower than previously guided.

“This is as a consequence of significantly higher returns rates impacting net sales growth and costs, with continued disruption to our international delivery proposition impacting international demand, and significant ongoing pandemic-related cost inflation,” the retailer said.

It noted, however, the factors currently negatively impacting the business are primarily related to the ongoing impact of the pandemic and are, therefore, transient in nature.

For the three months to the end of November, the group booked total net sales of GBP506.2m (US$674.87m), a 10% increase from GBP460.7m.

Sales in Boohoo’s domestic market were up 32% year-on-year, while those in the Rest of Europe (ROE), Rest of the World (ROW), and the US were down by 12%, 21%, and 14% respectively.

The retailer added significant and ongoing pandemic-related inbound freight cost inflation impacted gross margin in the period, which was down 100 basis points on last year. It noted this is estimated to impact EBITDA by about GBP20m in the financial year, the majority of which is in the second half.

Looking to the year ending 28 February 2022, the group now expects net sales growth to be 12-14%, compared to previous guidance of 20-25% growth.

This reflects the expectation the factors impacting its performance in this 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.

Adjusted EBITDA margin for the year is expected to be 6-7%, compared to previous guidance of 9-9.5%, implying adjusted EBITDA of between GBP117m-GBP139m.

This is due to significantly higher returns rates impacting net sales growth and costs, with continued extended delivery times impacting international demand, consequently driving lower returns on marketing expenditure, and significant ongoing pandemic-related inbound freight cost inflation, Boohoo said.

John Lyttle, group CEO, added: “The strong performance in our core UK market, across both our established and acquired brands, demonstrates the potential to capture and grow market share in key markets. In international markets, our proposition continues to be significantly impacted by ongoing service disruption due to the pandemic, which, in addition to increased recent consumer uncertainty, has weighed on our performance.

“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. Looking ahead, we are encouraged by the strong performance in the UK, which clearly validates the Boohoo model. Our focus is now on improving the international proposition through continued investment in our global distribution network, capable of delivering in excess of GBP5 billion of net sales, to support future growth.”

Shares in the Boohoo Group were down by 15% (16 December).

Last week, the central bank of Norway announced it had taken a 3.1% stake in the company.

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