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TOP NEWS: boohoo faces profit margin hit as cost pressures mount

Thu, 30th Sep 2021 08:45

(Alliance News) - boohoo Group PLC shares slumped on Thursday as the online retailer not only warned that Covid-19 is still hitting consumer demand, but it also cautioned on rising costs as inflationary pressures accelerate.

boohoo shares were 9.1% lower at 232.60 pence each in London on Thursday morning, but the stock was down as much as 17% earlier.

Profit in the six months to the end of August dropped by almost two-thirds, despite revenue climbing as sales reaped the rewards of market share gains in the US and UK.

Revenue during the period rose 20% year-on-year to GBP975.9 million from GBP816.5 million. Compared to two years earlier, so before the onset of the pandemic, the fast fashion firm's revenue was up 73% from GBP564.9 million.

The spread of Covid-19 meant bricks and mortar retailers across the globe were forced to close their estate due to lockdown measures, boosting demand for the likes of boohoo and peer ASOS PLC.

boohoo's market share in the UK and US has doubled "over the last two years", the company said.

Rising costs have hit profits, however. Pretax profit fell 64% to GBP24.6 million, from GBP68.1 million a year earlier.

The company has also faced increased competition from the high street recently, as lockdown measures have eased.

"Performance in the second quarter was impacted by UK returns rates returning to pre-pandemic levels, physical stores reopening, consumer uncertainty in markets that we operate in resulting in the loss of key events and holidays, as well as continued Covid-19 related disruption across the group's key international markets, which has impacted international delivery timeframes," boohoo explained.

Operating costs during the half increased by a quarter to GBP448.2 million from GBP359.5 million a year prior.

boohoo added: "Elevated short-term cost headwinds experienced in the first half are expected to continue in H2 alongside recent freight inflation in our supply chain and wage inflation within our distribution centres."

Adjusted earnings before interest, tax, depreciation and amortisation margins guidance has been lowered. The AIM stock now expects full-year adjusted Ebitda margins between 9.0% and 9.5%, the range lowered from 9.5% to 10% previously.

This reflects investments across technology, offices and infrastructure, boohoo noted.

The adjusted Ebitda margin for the first half was 8.7%, down from 11.0% a year earlier and 10.8% from pre-pandemic times.

Capital expenditure is now expected at GBP275 million, up from the previous GBP250 million forecast.

boohoo expects full-year sales growth of 20% to 25%, which implies second half sales growth of 20% to 30%, at worst, in line with the 20% growth rate from the first six months.

However, in the first quarter of the financial year, boohoo's revenue jumped 32% annually, suggesting sales growth in recent weeks and months has moderated.

By Eric Cunha; ericcunha@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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