Shein shares dive more than 11% after disappointing earnings

Shein's shares plummeted over 11% in Hong Kong on Tuesday following the release of disappointing financial results. The fast-fashion giant has been under scrutiny for its environmental impact and alleged human rights violations, as well as facing increased competition from low-cost e-commerce platforms like Temu and AliExpress. The company reported that its revenue grew by just 1% year-on-year in the first half of the year, while its operating profit fell by half.

By midday on Tuesday, Shein's share price had recovered slightly, but it remained down 10.9% at HK$31.44. This was Shein's first earnings report since its debut on the Hong Kong Stock Exchange in September, which valued the company at around US$26.3 billion, far below its private valuation of nearly $100 billion in 2022. The decline in revenue was mainly due to a 13.9% drop in Europe and a 6% decrease in the US, attributed to higher prices and reduced online advertising.

The company also cited the removal of customs duty exemptions as a contributing factor to the revenue decline in Europe. European operations saw a revenue drop of 13.9% to nearly US$3.8 billion, while the US market experienced a 6% decline in revenue for the April-June quarter. Despite being listed for three months, Shein's share price has dropped more than 35%.

Analyst Catherine Lim from Business Intelligence noted that the company's operating profit decline raises concerns about its ability to recover by 2027, especially with plans to absorb freight and tariff costs instead of raising prices to maintain its competitive edge. She also mentioned that localizing stock in Europe will lead to higher logistics costs in the short term.