Boohoo revenues soar but online fashion retailer warns supply chain issues and higher wages are set to dent profits
Boohoo’s sales soared by a fifth in the first six months of 2021 to £976million but the online fashion retailer has warned its profits for the year are likely to be hit by supply chain issues and higher wages.
Boohoo’s pre-tax profits of £64million were down 20 per cent compared to ‘exceptional levels of profitability’ in the first half of 2020, but remained 32 per cent above the levels in the first half of 2019.
Profits for the half were pinned back by record business investment of £172million to facilitate growth plans, with Boohoo having launched new brands and increased warehousing and distribution capacity.
The online fast fashion retailer is seeing costs rise and weigh on profits
This investment will continue in the remainder of 2021 as Boohoo told investors on Thursday full-year capital expenditure is expected to reach £275million for the year, up from £250million previously.
Sales are forecast to rise by up to 25 per cent over the full year, and Boohoo said consumer demand had improved through both August and September.
The firm, which has been taking steps to clean up its supply chain after revelations about labour practices at some of its partners emerged, has doubled its market share in the UK and US over the last two years.
Boohoo told investors Covid-related headwinds, in addition to ‘recent freight iflation in our supply chain and wage inflation within our distribution centres’ will weigh on earnings margins, which are now expected to be 9-9.5 per cent, compared to previous forecasts of 9.5-10 per cent.
However, it said Covid-related costs, in addition to ‘recent inflation in freight, logistics, and labour costs’, are expected to ‘reduce from elevated levels in time’.
Group CEO John Lyttle added: ‘Entering the second half of the year, the group is well-positioned to accelerate its growth and our confidence in the group’s medium term targets remain unchanged.
‘We will continue to invest across our platform, people and technology as we look to further cement our position as a leader in global fashion ecommerce.’
Boohoo shares plummeted by nearly 10 per cent this morning in reaction to the market update. Shares currently trade at 232.6p.
Commenting on Boohoo’s first half results, senior analyst Harry Barnick said: ‘Investors will be playing close attention to the sustainability of growth in the UK as Boohoo noted Q2 results were impacted by higher returns and the reopening of physical retail.
‘Although Boohoo’s market share has doubled over the last two years, as we head into the all-important Christmas season, the UK market is hotting up, with Chinese competitor, Shein, presenting a real threat to Boohoo’s market share given its price point and broad offer.
‘Our experts say supply chain concerns are now acute for companies like Boohoo. Autumn/Winter clothing is typically sourced from outside of Europe and if Boohoo is unable to mitigate its supply chain issues, its successful test and repeat sales model could begin to unravel.
‘Investors will be paying close attention to gross margin levels. Boohoo will either have to absorb additional supply chain costs or pass these on via price hikes.’