Boohoo’s revenues skyrocket, but retailer warns rising costs are expected to squeeze profits
Boohoo’s sales skyrocket, but shares drop as online fashion star warns of supply issues and higher wages should reduce profits
- Sales soared 20% in the first six months of 2021 to £ 976million
- But sales momentum disappointed investors with stocks down 9%
- Profit margins have been revised downward to 9-9.5% for the year
Boohoo’s sales jumped by a fifth in the first six months of 2021 to reach £ 976million, but the online fashion retailer warned its profits for the year would likely be hit by channel issues supply and higher wages.
Boohoo’s £ 64million pre-tax profit fell 20% from ‘exceptional profitability levels’ in H1 2020, but remained 32% above H1 2019 levels.
Half-year earnings were supported by a record business investment of £ 172million to facilitate growth plans as Boohoo launched new brands and increased its warehousing and distribution capacity.
Fast-paced online fashion retailer sees costs rise and weigh on profits
This investment will continue until 2021, as Boohoo told investors on Thursday that capital spending for the full year is expected to reach £ 275million for the year, up from £ 250million previously.
Sales are expected to increase by up to 25% year-over-year, and Boohoo said consumer demand improved in August and September.
The company, which took steps to clean up its supply chain after revelations about the labor practices of some of its partners emerged, doubled its market share in the UK and US during the last two years.
Supply chain issues impact H&M
Supply disruptions also hampered H&M sales in September, the Swedish retailer said Thursday.
“Sales in September 2021 were slightly higher than the corresponding month of the previous year in local currencies, although demand could not be fully met due to disruptions and delays in the flow of products,” H&M said.
Managing Director Helena Helmersson explained that the bottlenecks affecting H&M mainly relate to production, transportation and ports.
The situation is now improving on the supplier side, Helmerson told analysts, but H&M is bracing for more delays in deliveries in the current quarter.
Third-quarter pre-tax profits jumped 158% from a year ago to 6.1 billion Swedish kronor (£ 520 million).
Boohoo told investors that headwinds related to Covid, in addition to “recent freight inflation in our supply chain and wage inflation in our distribution centers” will weigh on profit margins, which are now expected be 9-9.5%, compared to the previous forecast of 9.5-10 percent.
However, he said costs related to Covid, in addition to “recent inflation in freight, logistics and labor costs”, are expected to “decrease from high levels over time.”
Group CEO John Lyttle added: “As we enter the second half of the year, the group is well positioned to accelerate its growth and our confidence in the group’s medium-term goals remains unchanged.
“We will continue to invest in our platform, human resources and technology as we seek to further consolidate our position as a leader in global fashion e-commerce. “
Boohoo shares fell nearly 10% this morning in reaction to the market update. The shares are currently trading at 232.6 pence.
Commenting on Boohoo’s first half results, senior analyst Harry Barnick said: “Investors will be very attentive to the sustainability of growth in the UK, with Boohoo noting that second quarter results have been affected by returns. higher prices and the reopening of physical retail.
“Although Boohoo’s market share has doubled over the past two years as we head into the all-important Christmas season the UK market is heating up with Chinese competitor Shein posing a real threat to market share. from Boohoo given its price and wide offer.
“Our experts say supply chain issues are now acute for companies like Boohoo. Fall / winter clothing is typically sourced from outside of Europe and if Boohoo is unable to alleviate its supply chain issues, its test and repeat sale pattern could start to crumble.
“Investors will be very attentive to gross margin levels. Boohoo will either have to absorb the additional supply chain costs or pass them on through price increases. ‘