Shein shares plunge 11pc after weak results show growth losing steam

On September 29, shares of Chinese fast-fashion retailer Shein plummeted more than 11 percent in Hong Kong following the release of weak financial results. The company has been under scrutiny for its environmental impact and alleged human rights violations, while facing increased competition from budget e-commerce platforms like Temu and AliExpress.

In the first half of 2023, Shein's revenue grew by only one percent year-over-year, while its operating profit was cut in half. By midday on Tuesday, the company's share price had recovered some of its losses, but remained down 10.9 percent at HK$31.44 (USD 16.36). Monday's earnings were Shein's first since its highly publicized initial public offering, which valued the company at around USD 26.3 billion - a far cry from its private fundraising rounds in 2022, when it was reportedly valued at nearly USD 100 billion.

European revenue fell by 13.9 percent to nearly USD 3.8 billion for the second quarter, according to Shein's report. The decrease was attributed to a decline in sales volume, as the company raised prices and reduced online advertising expenses in anticipation of the removal of customs duty exemptions. The United States also saw a six percent drop in revenue for the April-June period, due to the impact of tariffs.

Since its debut on the Hong Kong Stock Exchange in September, Shein's share price has dropped more than 35 percent. Catherine Lim, an analyst at Business Intelligence, noted that the accelerating decline in Shein's operating profit raises questions about the company's prospects for a 2027 recovery from freight relief and its push into higher-priced brands.

Lim suggested that management intends to absorb freight and tariff costs rather than raise prices to maintain the company's competitive edge, and that localizing inventory in Europe may lead to higher logistics costs in the near term.