Boohoo issues profit warning due to higher return rates

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Fast fashion giant Boohoo has blamed “significantly higher return rates” and continued extended delivery times as it issued an unexpected profit warning.

Boohoocom

In a trading update for the three months to November 30, 2021, Boohoo said it now expected EBITDA margin for the year to be 6% to 7% or between £117m to £139m, compared with the previous 9% to 9.5% guidance.

Net sales growth is also expected to take a hit, down to 12% to 14% for the year compared with previous guidance of 20% to 25%.

Boohoo blamed a number of factors for the downgrade, with “significantly higher returns rates” hitting net sales and impacting margins in the UK, while a fall in customer demand and issues with air freight have affected European and US sales respectively.

The retailer flagged that returns were 12.5 percentage points higher in the period than in the previous year and seven percentage points higher than pre-pandemic levels due to the “exceptionally high dress mix”.

Boohoo said it also expected to incur cash exceptionals of £33m, compared with the £22.5m guidance, primarily due to warehouse and brand restructuring.

For the period, Boohoo reported that net sales were up 10% to £506.2m, while UK gross sales were up 58% on full-year 2021 and 102% on full-year 2022.

Despite its travails, Boohoo said the group was “highly confident about its future growth prospects” and capable of delivering £5bn and normalised growth rates of 25% post-pandemic.

Chief executive 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 £5bn of net sales, to support future growth.”