Written by: Laura Hoy | Hargreaves Lansdown
In the three months to 30 November, sales including the impact of discounts and returns rose 10% from the same period last year to £506.2m. Strong sales growth in the UK outweighed declines across other regions.
Rising shipping costs throughout the period meant gross margins fell 1 percentage point.
The group lowered guidance for full-year sales growth to between 12% and 14% from 20% to 25%. Freight cost inflation is expected to shave £20m off cash profits at the full year, with margins between 6% and 7%, at least two percentage points lower than initially forecast.
The shares fell 13.9% following the announcement
Boohoo’s results seem to back up UK Chief Medical Officer Christ Whitty’s assumption that people are deprioritizing some social gatherings in light of the Omicron variant. The fast-fashion clothing retailer saw return rates spike in the UK, with an exceptionally high mix of dresses being sent back. But it was the international areas of the business that weighed heavily over the period with customer shipping times and uncertainty keeping a lid on demand. The real kick in the teeth was Boohoo’s decision to significantly lower its sales and profit guidance, citing everything from higher freight costs to Omicron concerns.
Boohoo’s in a difficult position—it’s made its name selling cheap clothes at the click of a button. That means the group either has to swallow inflation costs at the expense of margins, or risk losing some of its price-sensitive customers. Plus, many are put-off by longer than usual shipping waits, which the group has very little control over at the moment. All of its orders are fulfilled by its UK logistics network, which has been overwhelmed by pandemic-related shipping delays. The group’s working on a new distribution center in the US, but it won’t be online for at least another year. By then the Americans could have moved on to one of the group’s many competitors.
Management believes the issues are transient and we’re inclined to agree—but the question on everyone’s mind these days is what exactly ‘transient’ means. The supply chain bottle necks and cost inflation aren’t going to last forever, but another year coping with this kind of disruption would be disastrous for the retail sector, Boohoo included. The company is also still trying to repair its ethical credentials, following revelations last year that workers were being paid below the minimum wage. With ESG concerns still weighing on the company, it faces an uphill struggle to regain its pre-pandemic shine.