(Bloomberg) -- Boohoo Group Plc shares slumped to an eight-year low after the UK fast-fashion retailer cut its earnings and revenue forecasts as it lowered prices to attract cash-strapped shoppers.
The owner of the Karen Millen and PrettyLittleThing brands is the latest clothing retailer to warn that business conditions are worsening as sticky inflation hits consumer demand. Boohoo shares fell as much as 11%.
The company has had a difficult few year, weathering a labor scandal and then being buffeted with inflation and a drop in spending online after the e-commerce boom during Covid lockdowns. It has also had to cope with higher freight and energy costs, though that’s starting to ease now.
Competition is also intense as shoppers return to bricks-and-mortar retailers. Upstart e-commerce rival Shein has meanwhile been disrupting the industry with made-in-China clothing at cut-rate prices like $1 panties and $3.25 leather tank tops.
Full-year sales will probably drop 12% to 17%, Boohoo said Tuesday. Adjusted earnings may drop as much as 8%, according to the retailer, which has predicted expected an improvement.
Rival Asos Plc is also struggling and last month said that a wet July and August had resulted in disappointing sales. H&M has said that abnormally warm weather in Europe dented sales in September.
Asos shares fell as much as 4.4% Tuesday, while German online fashion retailer Zalando SE dropped as much as 7%.
Boohoo said it has been reducing prices to make its offerings more competitive in a UK clothing market where inflation has hit 8%. Revenue in the UK, which accounts for nearly two-thirds of sales, fell 19%, revealing the impact that inflation has had on demand.
The maker of Nasty Gal clothes said sales were weakest at smaller labels such as Oasis and Warehouse. The company did manage to push up its gross margin in the UK as some supply chain costs eased and return rates reduced slightly.
Boohoo has also been working to improve its US business which suffered as it took too long to send parcels to customers although it has since opened a distribution center there which it said is helping next day and express delivery options. The warehouse in Pennsylvania is now able to ship products to 95% of the US within three days.
What Bloomberg Intelligence Says:
“Boohoo’s 1,200-bp cut to fiscal 2024 sales growth guidance to anticipate a decline of 12-17% is 12% below the consensus midpoint and reflects a need to generate profit and cash flow at the expense of sales growth — similar to online-only peers Asos and Zalando. A 35% decline in inventory and 2H-adjusted Ebitda is still ahead of last year, and despite the reduced guidance is a positive development that ensures cash generation.”
—Tatiana Lisitsina, BI retail analyst
Boohoo is working on annual cost savings of £125 million ($151 million) pounds to boost profitability.
The company previously forecast full-year revenue to come in flat or decline as much as 5% this fiscal year.
(Updates with Asos, Zalando shares in seventh paragraph, analyst comment in 10th)
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