Boohoo Plunges as Online Clothing Retailer’s Growth Wilts

(Bloomberg) -- Boohoo Group Plc shares plunged after the U.K. online clothing retailer warned that revenue growth may grind to a halt in the first half as cash-strapped consumers return more garments.

The company also said Wednesday it expects full-year sales growth in the low single digits, which would be the smallest increase since its initial stock sale in 2014. Boohoo also predicted profitability will be much lower than its historical average. The stock fell as much as 16%, having lost more than four-fifths of its value since a peak in 2020.

Selling clothes online is getting tougher as retailers worldwide piled into e-commerce during the pandemic as shoppers were stuck at home. Cut-rate discount upstart SheIn has been enjoying exponential growth, while Inditex SA is trying to keep its sourcing advantages against other retailers. Hennes & Mauritz AB is also attempting to double its revenue by 2030.

“We view Boohoo as vulnerable to further market share loss,” wrote Sherri Malek, an analyst at RBC Europe.

The fast-fashion company slashed its sales projections twice last year as customers coming out of lockdown returned more clothes and the nascent U.S. business was hit by supply chain disruption and freight costs. Boohoo, whose brands include PrettyLittleThing and Nasty Gal, is also recovering from a labor supply scandal in 2020 which sparked governance changes at the e-commerce retailer.

Read more: Boohoo Defends Standards After Report of Labor Abuse at Supplier

Over the last two years, revenue has grown 77% in the U.K., 71% in the U.S. and 16% in Europe, according to Chief Executive Officer John Lyttle.

“This year is about consolidation of the market share we've gained over the pandemic,” Lyttle said in a phone interview. “We are holding onto all of that market share growth.”

The adjusted Ebitda margin will probably be 4% to 7% in the full year, Boohoo also said. Last year's level was 6.3%.

The retailer said it has started a cost-cutting program and is operating with lower levels of inventory. To help tackle the problem of freight costs and delays, the company is looking to buy its garments more closely to the point of sale.

About 60% of sourcing will come from territories including the U.K., Italy, Turkey and northern Africa, reducing the focus on China, Lyttle said. Moving products out of China even using air freight is slow and very costly, adding weeks rather than days, the CEO said.

Amid surging inflation, Boohoo will raise prices on garments when competitors increase but “we want to remain competitive,” the CEO said. The company will announce an increase in employee wages in the coming weeks to recognize the burden of rising costs, he said.

Boohoo expects higher return rates to continue in the first half as customers buying outfits for special occasions are more likely to send them back than than those shopping for casual clothing during Covid lockdowns. The retailer said Wednesday that sales growth should pick up in the second half of the year with return rates easing and consumer demand normalizing.