Shares of fast-fashion platform Shein fall 10% after quarterly profit slides 67%
Its profit margin was squeezed to just 2.1% from 6.2% last year
The shares of fast-fashion platform Shein dropped 10% on Tuesday (Sep 29) following a 67% decline in quarterly profit, heightening concerns about margin pressure and slowing growth. Adjusted net profit for the second quarter was US$228 million, a significant 67% drop from the same period last year. The profit margin contracted to 2.1% from 6.2% in the previous year, as the Middle East conflict triggered a rise in jet fuel and freight costs for Shein, which dispatches inexpensive apparel via air to shoppers globally.
European sales plummeted sharply during the quarter ending June, as Shein raised prices and cut online advertising in preparation for a 3-euro fee imposed by the European Union on low-value e-commerce parcels starting July 1. The platform reported US$11.08 billion in sales for the second quarter, with revenue in Europe down 13.9% to US$3.77 billion and US revenue falling 6% to US$2.5 billion.
Total sales edged up 0.9% year-over-year as growth in Latin America compensated for declines in Shein's most significant markets. Since its debut in Hong Kong on Sep 1, Shein's shares have fallen 27.3% from the offering price of HK$48.56 apiece, and the persistent profit squeeze failed to encourage investors. Jefferies analysts estimated earnings landed more than 10% below the low end of the range implied by the prospectus.
Shein CEO and Chair Yangtian Xu emphasized increasing inventory in Europe as a top priority. Shein has been investing in warehouse space in Poland, with a new logistics hub in Wroclaw boasting 740,000 sqm of warehouse space since December 2022. Industrial real estate firm CTP reported leasing an additional 66,000 sqm of warehouse space to Shein in Poland this year.
Xu also hinted at Shein's strategy of expanding its product offerings to higher-priced clothes, which would boost profitability and raise the company's average selling price.
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