Fashion retailer reports that pretax profits fell despite a 20% increase in sales. However, shoppers are returning more products.

Boohoo has warned of slowing sales growth, a squeeze in profit margins due to disruption to deliveries and increased competition from high street. This is combined with higher shipping costs and wage increases at its warehouses.

The shares of the online fast fashion retailer fell by more than 15% after it revealed that pretax profits were down almost 64% to PS24.8m over the six months to August despite an increase in sales to PS975.9m by 20%.

John Lyttle, chief executive officer of Boohoo said that the cost of shipping goods by air to the US has doubled while shipping costs to east Asian products was up three or four times.

Marketing costs also increased, partly as the company promoted its newly acquired brands, including Debenhams, Dorothy Perkins and Burton. As shoppers shifted away from the snug hoodies and jogging pants that were popular during lockdown, they returned more products than last year.

Boohoo echoed similar warnings from Next on Wednesday. He said that higher costs would continue into the second quarter, underpinned by increased freight costs and higher wages for its warehouse workers.

According to the company, wages are rising faster than inflation. However, it hopes to offset this by adding more automation to handle increased workload rather than hiring additional staff.

Lyttle stated that this year was the most difficult in terms of recruiting and wages because there was less staff from Europe.

According to the figures, sales growth declined in the final three months of the period, falling to 19% in UK from 50% the previous quarter. This was partly due to a lack in events like summer festivals and restrictions on overseas holidays.

This slowdown was more evident in the US, where the growth rate dropped to 9% in quarter two from 40% in the previous quarter.

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Boohoo stated that sales would not increase by more than 25% in the six-months ahead and profit margins would not exceed 9.5%, compared to a maximum of 10% previously hoped.

Analysts stated that sales performance was significantly below expectations.

Hargreaves Lansdown equity analyst Sophie Lund-Yates said that this is not Boohoo’s best look. The market has been severely disappointed by sales momentum, as well as a lackluster demand for holidays and festivals that have hurt the vital UK market.

The supply chain costs are also holding back the fast fashion giant. Profitability is affected by higher wages for workers and the well-publicized freight disruption and shipping disruption.

These headwinds won’t disappear overnight. It’s important that sales move at a faster pace.

She said the difficulties came as Boohoo moved to correct problems in its supply chain in response to allegations of poor working conditions.

Lund-Yates stated that “the steps to make amends should be commended and it’s essential they’re effective since Boohoo cannot afford another scandal.”

Lyttle stated that the company had achieved “an excellent operational performance and robust financial performance” in the last 18 months, when it had doubled its market share in the UK as well as the US. Boohoo also added that it had expanded its customer base through the acquisition of new brands with a different appeal.

Lyttle stated that consumer demand improved in August in France, Ireland, and the UK with higher sales in September.

He anticipated that freight costs would decrease as more passenger flights were scheduled, which transport commercial goods in the hold and more shipping companies released more capacity.

He stated that the group was well-positioned to accelerate its growth in the second half of the calendar year and that the group’s confidence in meeting its medium-term targets remains unchanged.

“We will continue investing across our platform and people as we seek to cement our position in global fashion ecommerce.”

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