Shares of fast-fashion’s Shein plunge 14% to record low after profit slides 67%

Shares of fast-fashion retailer Shein plummeted by up to 14% on Tuesday (Sep 29) following a 67% decline in quarterly profit in its first post-IPO results. The company's profit margin sank to just 2.1% from 6.2% the previous year. This margin compression and weakening growth in Europe have sparked investor worries about Shein's ability to maintain growth and improve margins.

Jianggan Li, CEO of Momentum Works, commented that while Shein continues to grow orders and expand into new markets, the margin pressure and European weakness raise questions about the company's capacity to return to a combination of strong growth and improving margins. Jefferies analysts estimated earnings for the quarter ended Jun 30 were more than 10% below the low end of their range implied by the company's prospectus.

The share drop reduced Shein's market value to about US$17 billion, down from roughly US$26 billion when it went public in Hong Kong on Sep 1. Sales in Europe fell sharply in the second quarter as Shein raised prices and reduced online advertising in anticipation of a 3-euro fee imposed by the European Union on low-value e-commerce parcels starting July 1.

Overall sales for the quarter were flat at US$11.08 billion, with revenue from Europe down 13.9% to US$3.77 billion and US revenue falling 6% to US$2.5 billion. Shein's CEO, Yangtian Xu, emphasized increasing inventory in Europe as a top priority and plans to introduce higher-priced clothing to boost profitability. However, recent price hikes in the United States and Europe could complicate Shein's strategy, as the EU is planning additional fees on low-value ecommerce parcels.