Boohoo dampens profit forecasts amid rising shipping costs

Boohoo has poured water on its profit forecasts amid the rising shipping costs as a result of the global supply chain crisis.

The news prompted the company’s share price to tumble as much as 20% when markets opened in London.

Boohoo had initially benefitted from lockdown restrictions as customers were forced to stay away from high street retailers and shop online.

However it now expects net sales growth of 12 to 14% in the year to February 2022, down from the previous guidance of 20 to 25%.

Not only that, but the fast fashion retailer has also downgraded its forecasted profit margins, slashing its ABITDA margin to between 6% and 7% per cent.

The company has cited challenges with return rates and supply chains for the reason, however it has said that the Omicron variant may lead to “further demand uncertainty and elevated returns rates” in January and February.

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Retailers have suffered with high returns rates throughout the pandemic and the cost of dealing with returns can prove to be costly as many returns cannot be resold.

“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,” Boohoo chief executive John Lyttle said.

In order to combat the supply chain bottlenecks that the company is experiencing, it is contemplating on speeding up the launch of its first ever distribution centre in the US, which is earmarked to open in 2023.

“Looking ahead, we are encouraged by the strong performance in the UK, which clearly validates the Boohoo model,” Lyttle added.

“Our focus is now on improving the international proposition through continued investment in our global distribution network.”

AJ Bell investment director Russ Mould told the Financial Times: “The pandemic may be an ongoing boon for online retailers, but Boohoo’s profit warning makes the case for having brick-and-mortar stores and suggests that their days are not as badly numbered as many investors or shoppers might think.”

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