16th Dec 2021 13:35
(Alliance News) - boohoo Group PLC cautioned on its annual results on Thursday as it counts the cost of customers returning many of the dresses and other clothes they ordered.
boohoo shares tumbled 15% to 116.72 pence each in London on Thursday afternoon, one of the worst performers on the AIM junior market. It extends its annual share price loss to 66%. The stock briefly hit its lowest level in over five years.
"Last year the business was dragged over the coals for poor [environmental, social and governance] practices, and it spent a long time trying to rectify what had become a PR disaster. This year supply chain issues and cost inflation are to blame for the online fashion retailer's struggles, with a spike in product return rates also dragging the business down," AJ Bell analyst Russ Mould commented.
For the financial year ending February 28, boohoo now expects net sales to rise by between 12% and 14%, lowered from the previous outlook of a 20% to 25% jump.
boohoo's adjusted earnings before interest, tax, depreciation and amortisation margin guidance has been lowered to 6% and 7%, from 9% to 9.5% previous. This will implies an adjusted Ebitda of GBP117 million to GBP139 million, at best down 20% from a year earlier.
boohoo said it has been hit by Omicron uncertainty and a high product return rate.
Mould added: "Handling product returns via a physical shop is relatively easy, if a bit disappointing for the retailer. For an online service working to relatively thin profit margins that are supported by high turnover of stock, low costs and seamless logistics, a product return is a much bigger nuisance, as boohoo's trading alert makes only too clear.
"Analysts and shareholders will also still be grappling with the issue of supply-chain management and whether boohoo's review of its sourcing will lead to increased costs on a sustainable basis, adding to the near-term pressures created by commodity prices, fuel prices, haulage shortages and product returns."
A big driver for the high returns, Hargreaves Lansdown said, is a rise in virus cases, causing social plans to be cancelled.
HL analyst Laura Hoy commented: "boohoo's results this morning seem to back up UK Chief Medical Officer Christ Whitty's assumption that people are deprioritizing some social gatherings in light of the Omicron variant.
"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.
"Plus, many are put-off by longer than usual shipping waits, which the group has very little control over at the moment. All of its orders are fulfilled by its UK logistics network, which has been overwhelmed by pandemic-related shipping delays. The group's working on a new distribution centre in the US, but it won't be online for at least another year. By then the Americans could have moved on to one of the group's many competitors."
By Eric Cunha; [email protected]
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