Boohoo’s profits plunge thanks to post-Brexit rules and shipping costs – despite near £1bn revenue

Online retail giant Boohoo’s half-year profits plunged after being hit by post-Brexit rules, increased shipping costs and heavy investment despite its revenue nearing £1bn.

The Manchester-headquartered group, which has doubled its market share in the UK and US since the start of the pandemic, has reported an increased in revenue for the six months to August 31, 2021, from £816.5m to £975.9m but its pre-tax profits fell from £68.1m to £24.6m.

In a statement to the London Stock Exchange, Boohoo said the hit to its profits included increased shipping costs, which were £26m higher than pre-pandemic levels.

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The missed targets have resulted in Boohoo’s shares plunging nearly 10% in early trading, BusinessLive has reported.

The group also confirmed that the new rules following Brexit also saw profit margins reduce from 57.8% to 53.6% because of the extra checks required at customs.

Bosses also revealed Boohoo took a hit as the percentage of garments sent back has returned to pre-pandemic levels and the easing of lockdown restrictions in the period saw shoppers return to the High Street.

But they were confident for the rest of the year, adding that the company is expected to emerge from the pandemic in a far stronger position compared to two years ago.

Heavy levels of investment included marketing and integrating new brands, including department store Debenhams and former Arcadia brands Dorothy Perkins, Burton and Wallis.

There were also two warehouse moves in Wellingborough and Daventry, and the purchase of new offices in central London.

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Group chief executive John Lyttle said: “Looking back over the last 18 months the group has delivered an excellent operational and robust financial performance, and that is a testament to all who have helped deliver this.

“We are delighted to have doubled our market share in key markets such as the UK and US, have significantly expanded our target addressable market through selective acquisitions and are excited about the global potential for all of our brands.

“In the first half of this financial year, our teams have yet again delivered: integrating four new brands, launching two new warehouses and strengthening our infrastructure in a manner that will allow our multi-brand platform to scale as planned.

“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.”

On its performance during the first half Boohoo added that it has made “significant progress” and generated “strong revenue growth and a robust EBITDA”.

Revenue has increased 73% compared to the same period in the first half of its 2020 year.

However, it added that its performance in the second quarter was impacted by UK returns rates getting back to pre-pandemic levels, physical stores reopening, “consumer uncertainty” in markets that it operates in resulting in the loss of key events and holidays.

That’s as well as continued Covid-19-related disruption across the group’s key international markets, which has impacted international delivery timeframes.

The group said its adjusted EBITDA of £85m for the period “remains robust” and represents an increase of 40% compared to the same time in its 2020 year.

Boohoo added: “This is however slightly lower than the exceptional levels of profitability achieved in the first half of the prior financial year.

“Profitability was impacted by a number of cost headwinds driven by short-term factors largely relating to the pandemic and our investment as we scale our newly acquired brands.

“These include: increased marketing investments in key markets and our new acquisitions, two warehouse operational moves, returns rates normalising and materially higher shipping costs.

“Covid-19-related distribution cost increases totalled approximately £26m in the first half, or 270 basis points of margin.”

On its outlook for its full-year results, Boohoo said: “Our expectation is for full year sales growth of 20% to 25%, implying sales growth of 20% to 30% in the second half of the financial year.

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“We have seen a re-acceleration in the rate of growth compared to that achieved in the second quarter.

“Adjusted EBITDA margins are expected to remain robust, and the group will continue to invest in its existing and new brands in order to facilitate the long-term growth opportunity.

“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.

“Consequently, adjusted EBITDA margins are now expected to be 9% to 9.5%, compared to 9.5% to 10% as previously guided. Reflecting ongoing investments across our technology, offices and infrastructure (including the initial phase of the international distribution centre), capex is now expected to be around £275m for the year, slightly above the top end of previous guidance of approximately £250m.

“The Covid-19 factors impacting EBITDA this financial year are expected to normalise over the medium term.

“Recent inflation in freight, logistics, and labour costs are expected to reduce from elevated levels in time, particularly as the group invests in its own infrastructure through implementing more advanced automation in its existing distribution centres, global travel capacity increases and our first global distribution centre opens in North America.”

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