Boohoo’s Europe, US woes take shine off booming UK

Shares of Manchester-based online fashion giant Boohoo fell about 15% on Thursday after it published a trading update for the three months to November 30, 2021, explaining that “expectations for the financial year ending 28 February 2022 will be lower than previously guided.”

Boohoo said: “This is as a consequence of significantly higher returns rates impacting net sales growth and costs, with continued disruption to our international delivery proposition impacting international demand, and significant ongoing pandemic-related cost inflation.”

Boohoo said performance in the current financial year will contain costs “that are pandemic-related” including inbound freight cost inflation of £20 million and outbound freight cost inflation of £45 million “as a consequence of higher carriage rates compared to pre-pandemic levels.”

Boohoo’s brands include Boohoo, PrettyLittleThing, Nasty Gal, MissPap, Karen Millen, coast, Oasis, Warehouse, Wallis, Dorothy Perkins, Debenhams and Burton.

The Manchester firm said it saw gross demand growth in the three-month period exceed that achieved in each of the first and second quarters of the financial year.

Group total net sales rose 10% to £506.2 million in the period amid “exceptional” demand in the UK where net sales rose 32%.

However, international performance across the group’s brands and markets were impacted by “significantly longer customer delivery times as a result of the pandemic” with all its international sales currently fulfilled from its UK distribution network.

“Having seen strong signs of a recovery in September, revenue in Europe has declined in the latter months of the period with increased consumer uncertainty,” said Boohoo.

“Performance in the US has not seen the recovery previously anticipated due to the continued impact of reduced air freight capacity on delivery times to customers.”

In its guidance and outlook, Boohoo said: “For the year ending 28 February 2022, the group now expects net sales growth to be 12% to 14%, compared to previous guidance of 20% to 25% growth.

“This reflects our expectation that the factors impacting our performance in the period persist through the remainder of the financial year, and recent developments surrounding the Omicron variant could pose further demand uncertainty and elevated returns rates particularly in January and February.

Adjusted EBITDA margin for the year is expected to be 6% to 7%, compared to previous guidance of 9% to 9.5%, implying adjusted EBITDA of between £117 million to £139 million.

“This is due to significantly higher returns rates impacting net sales growth and costs, with continued extended delivery times impacting international demand, consequently driving lower returns on marketing expenditure, and significant ongoing pandemic-related inbound freight cost inflation.

The group expects to incur cash exceptional items for the year of around £33 million, compared to £22.5 million previously guided, primarily due to warehouse and new brand restructuring.”

Boohoo CEO John Lyttle said: “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.

“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.

The group has gained significant market share during the pandemic.

“The current headwinds are short term and we expect them to soften when pandemic related disruption begins to ease.

“Looking ahead, we are encouraged by the strong performance in the UK, which clearly validates the boohoo model.

“Our focus is now on improving the international proposition through continued investment in our global distribution network, capable of delivering in excess of £5 billion of net sales, to support future growth.”