Online fashion retailer Boohoo warns over Omicron demand uncertainty

Boohoo has warned of a hit to profits and sales as the Omicron variant could “pose further demand uncertainty” and more customers returning purchases in the new year.

The online retailer said it now expected sales growth for the year to the end of February of 12-14% compared to a previously-pencilled in 20-25% step-up, with profit margin also lower than had been expected.

It is also being squeezed by higher freight costs – a burden being felt by businesses across the economy – which will knock £20m off earnings.

Live COVID updates from across the UK and around the world

Shares plunged 20% on the update.

Boohoo said its latest financial guidance “reflects our expectation that the factors impacting our performance in the period persist through the remainder of the financial year, and recent developments surrounding the Omicron variant could pose further demand uncertainty and elevated returns rates particularly in January and February”.

The comments suggest that online fashion sales, which saw strong growth during the pandemic, are not immune from the latest COVID fears that are being seen by businesses with bricks-and-mortar premises hit by thinning footfall in town and city centres.

It comes after pub chain Wetherspoons and electrical to mobile retailer Currys this week flagged up a hit to demand as a result of the latest uncertainty over the virus.

In its latest update, Boohoo said it had seen “exceptional” demand in the UK – representing more than half of its revenues – over the three months to the end of November with sales up 32% year-on-year.

Yet it has experienced returns rates that are 12.5 percentage points higher than in 2020, driven by an “exceptionally high” dress mix.

In Europe, the US and the rest of the world sales were down due to “significantly longer customer delivery times as a result of the pandemic” at a time when all international orders are currently fulfilled from a UK distribution network.

Across the group as a whole, which includes the PrettyLittleThing and Nasty Gal platforms as well as former high street brands including Debenhams and Dorothy Perkins, sales were up 10% to £506m.

Chief executive John Lyttle said: “The strong performance in our core UK market, across both our established and acquired brands, demonstrates the potential to capture and grow market share in key markets.

“In international markets, our proposition continues to be significantly impacted by ongoing service disruption due to the pandemic, which, in addition to increased recent consumer uncertainty, has weighed on our performance.

“The group has gained significant market share during the pandemic.

“The current headwinds are short term and we expect them to soften when pandemic related disruption begins to ease.”

The update comes after a previous warning by Boohoo that sales growth slowed over the summer quarter following the reopening of high street rivals and an uptick in returns, while it also at that time flagged higher wage supply chain bills and wages for warehouse workers.