Boohoo’s margins dented by higher freight and labour costs

Boohoo’s margins dented by higher freight and labour costs

British online fashion retailer Boohoo (BOOH.L) warned on Thursday that full year profit margins will be lower than its previous guidance due to a rise in freight costs in its supply chain and higher wages for its distribution centre workers.

Shares in the group dropped 11%, extending year-on-year losses to 37% after it said full year 2021-22 adjusted EBITDA margins were now expected to be 9% to 9.5%, compared to 9.5% to 10% previously guided.

“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,” it said.

The group, which is seeking to improve its image after negative publicity over supply chain failings, also raised its guidance for full year capital expenditure to 275 million pounds ($376.2 million) from up to 250 million previously.

It plans to open a new distribution centre in North America in 2023.

Boohoo made adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of 85.1 million pounds in the six months to Aug. 31, down 5% on the same period last year, reflecting 26 million pounds of additional freight and logistics costs.

First half sales rose 20% to 975.9 million pounds and are forecast to be up 20% to 25% over the full year, implying growth of 20% to 30% in the second half.

Boohoo said consumer demand had improved through both August and September.

Finance chief Neil Catto told Reuters the firm was in “fairly good shape” as regards seasonal workers for its distribution centres, though it still needed to recruit another 1,000 in Britain’s tight labour market.

He said Boohoo’s current season prices are “a few percent” higher year-on-year due to the elevated import costs.

Catto added that Boohoo planned to maintain delivery options through peak trading periods in line with previous years.

On Wednesday Next (NXT.L) warned labour shortages could impact Christmas deliveries.

In January, Boohoo purchased the Debenhams brand out of administration for 55 million pounds and in February bought the Dorothy Perkins, Wallis and Burton brands from the administrators of Arcadia for 25.2 million pounds.

dvd-mpegnet