Shein shares dive more than 11% after disappointing earnings

On Tuesday, the Chinese fast-fashion company Shein experienced a significant drop in its share price following the release of disappointing financial results. The company's shares fell by more than 11% in Hong Kong, with the price dropping from HK$31.44 to around HK$31.44 by midday. This decline comes after Shein's initial public offering earlier this month, which valued the company at around US$26.3 billion, far below its private fundraising rounds of nearly $100 billion in 2022.

Shein's performance has been impacted by growing competition from low-cost e-commerce platforms like Temu and AliExpress, as well as environmental concerns and allegations of human rights violations. The company reported a 1% increase in revenue on a year-over-year basis in the first six months of the year, but its operating profit halved during the same period.

Europe and the United States emerged as key markets facing challenges for Shein. Revenue from Europe fell by 13.9% to nearly US$3.8 billion for the second quarter, while revenue in the US decreased by 6% in the April-June quarter. The company attributes the decline to a combination of factors, including raising prices and reducing online advertising spending in anticipation of the removal of customs duty exemption. Meanwhile, the US market faced the impact of tariffs.

Despite its initial success on the Hong Kong Stock Exchange, Shein's share price has fallen more than 35% since its first day of trading in September. Analyst Catherine Lim from Business Intelligence noted that the company's accelerating decline in operating profit raises questions about its potential recovery in 2027. She stated that Shein intends to absorb freight and tariff costs rather than raise prices to maintain its competitive position, but the localisation of stock in Europe could lead to higher logistics costs in the short term.