Boohoo says surge in dress returns set to hit profits

Boohoo bought the Karen Millen brand in 2019

Boohoo has said a surge in customers returning smarter clothes such as dresses is likely to hit its sales and profits this year.

The online retailer said it had sold an "exceptionally high" proportion of dresses in the quarter to November.

A Boohoo spokeswoman said people were more likely to return expensive clothing from its brands such as Karen Millen and Coast.

It added overseas delivery delays and higher shipping costs will hit profits.

As a result, Boohoo now expects earnings to grow by 6-7% in the year to February, compared to previous forecasts of a 9-9.5% increase, and has nearly halved its forecast for sales growth.

The news sent shares in Boohoo down by about 15%.

Laura Hoy, equity analyst at Hargreaves Lansdown, said: "Boohoo's results this morning seem to back up UK Chief Medical Officer Christ Whitty's assumption that people are de-prioritising some social gatherings in light of the Omicron variant.

"The fast-fashion clothing retailer saw return rates spike in the UK, with an exceptionally high mix of dresses being sent back."

Pandemic disruption

Boohoo said it had seen "significantly higher returns rates impacting net sales growth and costs, with continued extended delivery times impacting international demand".

The firm saw UK sales rise over the three months to 30 November, but sales fell sharply in Europe, the US and the rest of the world.

Boohoo said it expected freight costs to the UK to be about £20m higher this year, while consumer uncertainty and delivery delays were hampering European and overseas trade.

It said it was having to deliver all international sales through its UK distribution network due to shipping and air freight disruption, which was leading to lengthy customer delivery delays.

John Lyttle, group chief executive, said international sales had been hit by "ongoing service disruption due to the pandemic" which, added to higher consumer uncertainty due to the spread of the Omicron variant, had dragged on its performance.

But he expected sales to get better as "pandemic-related disruption begins to ease".

Ms Hoy at Hargreaves Lansdown said: "Management believes the issues are transient and we're inclined to agree - but the question on everyone's mind these days is what exactly 'transient' means.

"The supply chain bottle necks and cost inflation aren't going to last forever, but another year coping with this kind of disruption would be disastrous for the retail sector, Boohoo included."

Boohoo has expanded significantly in recent years.

It acquired Karen Millen and Coast in 2019, bought Warehouse the following year and more recently took over the brand and website of failed department store chain Debenhams.