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Boohoo shares sinks 15% as supply chain crisis hits sales

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·Business reporter
·3-min read
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An illustration with a mobile phone and laptop shows the logo and website of online fashion group Boohoo on August 12, 2021. (Photo by JUSTIN TALLIS / AFP) (Photo by JUSTIN TALLIS/AFP via Getty Images)
The brand also experienced returns rates that were 12.5 percentage points higher than the year before, driven by an "exceptionally high" dress mix. Photo: JUSTIN TALLIS/AFP via Getty Images

Boohoo (BOO.L) fell out of fashion with investors on Thursday after it warned that the ongoing supply chain disruption would have a knock sales and profits.

Shares at the online retailer slumped as much as 15% to their lowest level since November 2016, as it battles rising costs and higher rates of return.

It revealed that it was bracing for a £20m ($26m) hit to profits thanks to higher freight costs in the UK, while European and overseas trading will take a £45m hit due to dented consumer uncertainty and further delays.

In the most recent three months of the year to the end of November, UK sales climbed by nearly a third, but slumped in every other market.

Across the group as a whole, which includes brands such as PrettyLittleThing and Nasty Gal, as well as Debenhams and Dorothy Perkins, sales were up 10% to £506m.

Boohoo has fallen sharply over the last year, and fell 15% on the day. Chart: Yahoo Finance
Boohoo has fallen sharply over the last year, and fell 15% on the day. Chart: Yahoo Finance

Boohoo, which also acquired Karen Millen and Coast in 2019, now expects full-year sales growth to come in between 12-14%, down from its previous 20-25% range.

Meanwhile, underlying earnings for the year to the end of February 2022 are now forecast to grow by between 6% and 7%, compared to previous estimates of a 9-9.5% increase.

The fashion house also experienced returns rates that were 12.5 percentage points higher than the year before, driven by an "exceptionally high" dress mix.

“The strong performance in our core UK market, across both our established and acquired brands, demonstrates the potential to capture and grow market share in key markets,” John Lyttle, chief executive, said.

“In international markets, our proposition continues to be significantly impacted by ongoing service disruption due to the pandemic, which, in addition to increased recent consumer uncertainty, has weighed on our performance,”

He added that sales are expected to get better as "pandemic-related disruption begins to ease" but also cautioned that the Omicron variant could "pose further demand uncertainty".

Read more: European markets advance ahead of BoE and ECB interest rates decision

The group added that it continues to invest in building a distribution network capable of supporting in excess of £5bn of net sales, with its first US distribution centre expected to go live in 2023. It is also considering options to expedite this process.

The news also dragged down online rival Asos (ASC.L) which fell as much as 11% after opening, before later recovering some ground.

"It’s never good when the name of your company is the same sound as the management are making after issuing a profit warning," Russ Mould, investment director at AJ Bell. "Boohoo is taking the view that cost pressures are only temporary, but the pandemic is still raging, and the latest inflation figures would suggest things are getting worse, not better.

“The only way Boohoo is going to win back the market’s favour near term is if revenue growth rates accelerate dramatically and it’s really hard to see that happening in the current environment.”

Laura Hoy, equity analyst at Hargreaves Lansdown said: "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."

Watch: Online fashion retailer Boohoo warns over Omicron demand uncertainty

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