Boohoo share price falls as profit margins slip

Boohoo
online retailer Boohoo continues to produce profits but margins slip.

Boohoo (LON:BOO) share price fell on Wednesday, with its latest company results revealing signs of pressure on profit margins in the six months to August 31.

The online fashion retailer reported a 41 percent increase in pretax profit to £20.3 million for the six months to the end of August, up from £14.1 million a year previously, with revenues ultimately up 106 percent to £262.9 million.

Nevertheless, shares plunged as much as 8 percent, as investors reacted to the news of a 200 basis points fall in the retailer’s gross margin, down to 53.3 percent from 55.3 percent as a result of additional investments across the period.

Overall, sales were boosted by the group’s acquisition of rival online brand PrettyLittleThing, which enjoyed a 289 percent increase in first-half revenue to £72.7 million. Moreover, the brand anticipates a growth in  of approximately 150 percent for the financial year.

Mahmud Kamani and Carol Kane, Boohoo’s joint chief executives, stated: “Boohoo’s revenue has continued to grow across all geographies, with international growth being strongest as we continue to increase our market share overseas, and the newly acquired PrettyLittleThing brand has exceeded our growth expectations.“

They continued: “The strong performance in the first half-year and our expectations for the second half have given us confidence to raise guidance for the full year.”

The strength of online retailers such as ASOS (LON:ASC), Boohoo and Missguided in recent years are a reflection of changing consumer habits, with shoppers increasingly turning to the convenience of the internet.

This has been reflected the fall in average footfall across UK retail in the last few years, and whilst UK retail sale figures rose unexpectedly for August, inflationary pressures continue to cause concerns for retailers.

As a consequence, previously dominant high street such as Arcadia-owned Topshop have begun to feel the burden of the success of its primarily online competitors such as Boohoo.

Back in June, Arcadia group’s holding company Taveta investments reported a plunge in profits of a remarkable 79 percent, amid ongoing BHS-related complications and various one-off costs.

Shares in Boohoo are currently down 10.53 percent as of 13.13PM (GMT).