Boohoo: Profits Slammed by Returns and Freight Costs

U.K. fashion retailer Boohoo on Thursday (Dec. 16) downgraded its profit and sales growth projections for the second time in 2021, saying that supply chain snafus, inflation and higher-than-expected return rates are to blame for the drop, according to a Financial Times report.

Early in the onset of the COVID-19 pandemic, Boohoo benefited from restrictions and lockdowns that kept customers away from brick-and-mortar shops, but the company now expects net sales growth of 12% to 14% through February 2022, down from previous guidance of 20% to 25%.

It also downgraded its forecast for profit margins, cutting expected adjusted EBITDA to between 6% and 7%, against earlier forecasts of 9% to 9.5%. Adjusted EBITDA for the year to the end of February 2022 is forecast at between £117 million ($156 million) and £139 million (more than $185 million).

Challenges with return rates and supply chains were “transient,” according to Boohoo, but it predicted that the omicron variant of COVID-19 may lead to “further demand uncertainty and elevated returns rates” in January and February.

Boohoo has scaled back its predictions several times this year, including in May, when it warned that sales growth would be slower than expected for the year, at 25% against the 29% forecast. In September, company officials said profit margins would fall short of its previous annual forecast.

“The group has gained significant market share during the pandemic,” said CEO John Lyttle, according to FT. “The current headwinds are short-term, and we expect them to soften when pandemic-related disruption begins to ease.”

The downturn can largely be attributed to recent falling sales for Boohoo in the U.S. and elsewhere, although U.K. sales have improved. Customers outside the U.K. have experienced long waits for their deliveries because international sales are fulfilled by Boohoo’s U.K distribution network.

Boohoo is considering an acceleration of its first U.S. distribution center, currently scheduled for a 2023 opening.

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