Barclays downgrades Boohoo on profit warning

Barclays has cut its rating on Boohoo Group after the fast-fashion retailer surprised with a profits warning.

The bank said there had long been risks to trading but the scale of the online retailer's warning on Thursday had been "very significant".

It pointed to three issues flagged by Boohoo: higher returns, continued disruption to the international business, and ongoing cost inflation.

Barclays said the issues surrounding cost inflation were unsurprising and well understood.

But it added it was surprised by the surging returns rate - returns are now higher than pre-pandemic levels - while problems around the international business appeared "a more structural issue than feared".

It noted: "The reopening of commercial travel to the US hasn’t eased delivery times, and there isn’t an obvious catalyst for this to fully ease until a US distribution centre is opened in 2023. Similar issues exist in Australia and in Europe.

"Warehouse expansion brings operational risk and adds a list of question marks on where margins go over a year years.

"There are some transitionary effects in this reset but we find it hard to build confidence on this rebuilds in the new term."

Barclays has cut its rating to ‘equal weight’ from ‘overweight’, and also slashed its price target to 395p from 135p. It flagged Zalando, HelloFresh and THG as "more interesting" European e-commerce operators.

Boohoo said on Thursday that full-year net sales growth was likely to come in between 12% and 14%, significantly lower than its previous guidance for between 20% and 25%. It said "significantly higher" returns rates were impacting both sales growth and costs, despite "exceptional" UK demand.