10th Mar 2022 18:38
(Alliance News) - Rising inflationary pressures could become the latest thorn in boohoo Group PLC's side as the fashion retailer pointed to more clothes returned in recent months as customers changed their buying habits.
boohoo on Thursday warned that high return rates will continue to hit sales, though it expects annual profit to be in line with market forecasts.
The online retailer said its fourth quarter net sales grew 7% annually, or 48% on a two-year basis. It meant that for the year, net sales climbed 14% yearly and by 61% on pre-virus times.
"As expected, net sales growth in the quarter was impacted by higher returns rates year-on-year due to product mix. This is expected to continue in the first half of FY23," boohoo added.
boohoo said its international trading remains hurt by supply chain pressures and longer customer delivery times. However, the company's Rest of the World segment returned to growth in the fourth quarter, bolstered by a strong wholesale offering.
For the year ended February 28, boohoo expects to report group adjusted earnings before interest, tax, depreciation and amortisation of GBP125 million. It is an outcome that would be in line with guidance and market expectations, though down 28% from GBP173.6 million a year earlier.
The company has endured a torrid past 12 months, embodied by profit warnings centred around slowing growth and concerns over its corporate governance standards.
Back in December, the company cut its sales guidance following the emergence of the Omicron variant of Covid-19. boohoo cut its annual sales growth guidance to a 12% to 14% range, from previous guidance of 20% to 25%.
Looking ahead, there are fears boohoo will sustain further pressure given the squeeze on consumer finances due to rising inflation.
AJ Bell's Russ Mould commented: "With food and energy bills taking up a greater proportion of its target market's take-home pay, there will be less money available for discretionary spending such as buying a new dress from Boohoo.
"Consumers who found themselves on furlough during the pandemic got a wake-up call about the need to have more money in savings and not to be reliant on debt. Hopefully the nation is getting better at forging positive personal finance habits, but that doesn't work in boohoo's favour if its customers are now thinking twice before buying an item of clothing they may only wear once and then chuck.
"The company's growth expectations were pared back after last year's profit warning, and it is hard to see boohoo achieving anything above low double-digit sales growth this year at best. A bigger concern is how boohoo will cope with cost pressures which look like they could intensify. One can only expect profit margins to be squeezed further."
By Arvind Bhunjun; [email protected]
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