Boohoo warns on costs as profit drops

Boohoo cut its sales guidance and warned on rising costs as the online fashion retailer reported a 20% drop in first-half profit.

Adjusted pretax profit for the six months to the end of August fell to £63.8m from £79.4m a year earlier as revenue rose 20% to £975.9m.

Earnings before interest, tax, depreciation and amortisation fell 5% to £85m and were 15% lower than analysts' average forecast. Boohoo said profit fell because of rising costs such as increased marketing spending, warehouse moves and shipping expenses.

The AIM-traded company said it expected sales to rise by 20-25% in the year to the end of February, down from guidance for a 25% increase issued before the results. The rate of gross sales growth increased in September compared with the second quarter as consumer demand recovered, it said.

The company said it expected higher costs in the first half to continue along with rising freight inflation and higher wages paid to warehouse workers. The adjusted earnings margin is likely to be 9-9.5% compared with earlier guidance of 9.5-10%.

Shares of Boohoo fell 10.7% to 228.7p at 09:12 BST.

Boohoo also said capital spending would be higher than previous guidance at about £275m instead of £250m. The company said it expected pressures affecting earnings to normalise over the medium term.

Chief Executive John Lyttle said: "Entering the second half of the year, the group is well positioned to accelerate its growth and our confidence in the group's medium-term targets remain unchanged. We will continue to invest across our platform, people and technology as we look to further cement our position as a leader in global fashion ecommerce."

Revenue rose after the company snapped up brands such as Debenhams and Burton, Dorothy Perkins and Wallis from the remnants of Philip Green's empire.

Michael Hewson, an analyst at CMC Markets, said: "The more important detail was that the retailer downgraded its sales growth expectations. It would appear that, despite the easing of lockdown restrictions, any pent-up demand appears to have been offset by rising costs, as well as the willingness of consumers to get out and about more and actually shop in store."

The past two years have been rocky for Boohoo after some of its suppliers were found to have dire working conditions and to pay illegally low wages.