A woman with the Boohoo website on a mobile phone and the company’s logo in the background
Boohoo was a big winner during the initial phases of the Covid-19 pandemic © REUTERS

Boohoo has warned again of slowing revenue growth and elevated operating costs, sending its share price lower and reducing the chances that two lucrative management incentive schemes will pay out.

The fast-fashion retailer was a big winner during the initial phases of the Covid-19 pandemic, when store-based rivals were forced to close and it switched to producing the loungewear that was in demand during lockdowns.

But over the past year, it has warned about slowing revenue four times as high-street rivals reopened, while higher levels of product returns and soaring freight costs squeezed profit margins.

On Wednesday, it said sales growth for the year to February 2023 would be in the “low single digits” against analyst forecasts of around 9 per cent and the 14 per cent achieved in the year to February 2022.

Profit margins, before interest costs and non-cash charges, are expected to be between 4 and 7 per cent, versus 6.3 per cent in the year just ended and pre-pandemic levels of closer to 10 per cent.

“We were running nicely towards Christmas and then Omicron came along and parties were cancelled,” said chief executive John Lyttle. “Christmas was better than 2020 but not as good as we’d hoped.”

Lyttle said the current higher return rates reflected changes in the mix, with sales of dresses, in particular, higher than they were before the pandemic as customers rejigged their wardrobes.

Such items are more likely to be returned for reasons of fit or style than elasticated jogging bottoms and loose hoodies.

Transport disruption, particularly to air freight, meant that international sales were disappointing and the cost of fulfilling them was higher.

“We can’t get parcels out quickly enough,” said Lyttle. “In the US, 10-day delivery is two weekends. If you are a teenager planning a night out that’s just not good enough.”

The company is responding by building a distribution centre in the US. It is also manufacturing more clothing in Turkey and north Africa, from where it can be transported to the UK by truck, reducing its dependence on heavily disrupted air and sea freight routes from Asia.

Like many rivals, it is also pouring money into automating its warehouses to increase efficiency. Raising prices, as Next and Primark have already indicated they will do, remains a last resort.

But Liberum analyst Wayne Brown said the guidance set “an uneasy direction of travel” for the coming year.

“With margins declining, sales hard to come by and competition as rife as we have ever seen it, layering on debt and doing expensive capex projects seems unfortunate timing,” he wrote in a note to clients.

Shares in the company, which rose above 400p during 2020, were down 12 per cent to 70p in early trade, giving the group a market value of £900mn

That means the stock would have to stage a spectacular recovery if two lucrative management incentive schemes are to pay out. Senior executives, including co-founders Mahmud Kamani and Carol Kane, would share £150mn if the market value hit £7.55bn by June next year.

A separate scheme for Lyttle requires a £6bn market value by June 2024 to generate full payout, but even the most optimistic analyst share price targets are below those levels.

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