Business

Boohoo issues profit warning as shoppers cut back on clothes

Fashion retailer sees revenue falling further through rest of 2022

Boohoo revealed a slump in sales over the past six month as it was affected by higher returns and cost-of-living pressures on customer spending.

Wed Sep 28 2022 - 08:45

Boohoo stock plunged after it cut profit guidance for the year as soaring energy and food bills stopped consumers from splashing out on clothes and shoes.

The British fashion retailer now expects an earnings margin of between 3 per cent and 5 per cent, compared with previous guidance of 4-7 per cent. Boohoo said on Wednesday that revenue dipped 10 per cent in the first half, and is expected to keep falling due to inflation and weaker consumer demand. The stock fell as much as 18 per cent in early trading in London.

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.

[ Boohoo cuts hundreds of suppliers after criticism of labour practices ]

“There’s no doubt that consumer confidence is weak,” chief executive John Lyttle said. “I don’t think any consumer is able to avoid the current inflationary pressures so everything, whether you go out for a drink or buy food at the supermarket, everything is impacted by inflationary pressures.”

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Shoppers are tightening their purse strings in the UK, Boohoo’s home market, as inflation soars to the highest level 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 per cent of group revenues, declined by 4 per cent, 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 amid weaker confidence among consumers”.

Boohoo is seeking to control costs and is carrying less stock than before to be as flexible as possible against an uncertain consumer backdrop.

“We need to be agile and manage our costs as best as possible and be in a position to chase demand when it’s there, said Mr Lyttle.

Further afield, Boohoo’s performance in the US was also below expectations with revenue dropping 29 per cent on the prior half with revenue also down 2 per cent in the rest of Europe. In the US, Boohoo is also facing supply chain issues as deliveries take an average of 10 days compared with three to five days before the pandemic, said Mr Lyttle.

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

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