Boohoo Group Plc 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 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. The stock fell as much as 18% 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 labor scandal in 2020 which sparked governance changes.
“There’s no doubt that consumer confidence is weak,” Chief Executive Officer John Lyttle said in a phone interview. “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.”
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% of group revenues, declined by 4%, 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.
What Bloomberg Intelligence Says:
Boohoo’s profit warning reflects its long list of problems which are likely to last throughout fiscal 2024, accelerated by the cost of living crisis in the UK (62% of sales) and the lack of an international warehouse that’s hurting US demand (sales down 29%).
-- Tatiana Lisitsina, BI retail analyst
Boohoo’s Pofit Warning Reflects Issues Lasting Into 2024: React
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 Lyttle.
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. 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 Lyttle.
Boohoo started charging customers £1.99 ($2.12) 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.
(Updates with share move in first graph, CEO comments from fourth graph.)
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