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Boohoo Drops First NFT Collection After ‘Higher Return Rates’ Raise Concerns

Boohoo‘s net sales jumped 10 percent to 506.2 million pounds ($670.9 million) in the third quarter, up from the 460.7 million pounds ($610.6 million) in the year-ago period. However, the British fashion e-tailer cited rising product returns as a factor inhibiting sales growth and lowered its full-year earnings guidance accordingly, driving its stock down as much as 16 percent on Thursday.

Like its peers in fashion, the company announced the BoohooMan brand’s entrance into the metaverse Friday with the launch of its first-ever non-fungible token (NFT) collection online.

In a Nutshell: Boohoo Group expects 12 percent to 14 percent net sales growth for fiscal year 2022, a steep revision from previous guidance of 20 percent to 25 percent. Adjusted EBITDA margin for the year is expected at 6 percent to 7 percent, down from the previous guidance of 9 percent to 9.5 percent, implying adjusted EBITDA of between 117 million pounds ($155.2 million) to 139 million pounds ($184.4 million).

Boohoo expects capital expenditures will total 33 million pounds ($43.8 million) for the year, up from previous guidance of 22.5 million pounds ($29.8 million), primarily due to warehouse and new brand restructuring.

The PrettyLittleThing, NastyGal and Karen Millen owner blamed “significantly higher returns rates” as a main factor impeding net sales growth and driving up costs. Returns rates are 12.5 percentage points higher than last year, and 7 percentage points above pre-pandemic levels driven by an exceptionally high dress mix, it said.

Boohoo said ongoing disruption to international delivery and pandemic-related cost inflation continue to impacting demand. In particular, U.S. performance has not recovered as anticipated largely because of air freight capacity constraints and unreliable delivery times.

“The biggest issue we have on air freight is that most of our cargo flies in the belly of passenger planes,” John Lyttle, Boohoo Group CEO, said during a company earnings call. “We don’t actually use a lot of cargo planes to move our freight. The real key for us is having international travel getting back to normal. Equally, that puts more capacity into the market, therefore more supply and that will drive down costs. We’re quite confident this is all about passenger aircraft going back in the air, particularly in international.”

The retailer said its fourth quarter adjusted EBITDA margin remains unchanged at 10 percent, but didn’t give an outlook on sales. The third-quarter margin, down 100 basis points year on year, is estimated to impact annual EBITDA by approximately 20 million pounds ($26.5 million).

For the year, inbound freight cost inflation totaled approximately 20 million pounds ($26.5 million), Boohoo said. Outbound freight cost inflation reached 45 million pounds ($59.7 million) on higher freight rates compared to pre-pandemic levels. Boohoo also spent 10 million pounds ($13.3 million) on startup costs for brands acquired earlier this year, including Debenhams.

The Oasis, Warehouse and MissPap owner continues to invest in building a distribution network capable of supporting more than 5 billion pounds ($6.6 billion) in net sales, expecting its first U.S. distribution center to go live in 2023. However, the company is considering options to expedite this process.

The fashion retailer said its current liquidity now stands at more than 170 million pounds ($225.4 million) with net cash at 70 million pounds ($92.8 million).

On Friday, Boohoo introduced its first collection of 3D futurist NFTs, reimagining its T-shirts, outerwear, tracksuits and hoodies for the metaverse. Boohoo is making eight NFTs in total, giving them away in an online sweepstakes to eight winners.

BoohooMan NFTs are minted on the Ethereum blockchain, the second-largest blockchain after Bitcoin, and will be sent to the winners’ Ethereum wallet through the peer-to-peer OpenSea marketplace.

“Blockchain technology and NFTs are on the tip of everybody’s tongue and have been for quite some time,” said Samir Kamani, BoohooMan CEO. “We have seen luxury brands flock to the metaverse one after another, but we are yet to see any fashion brands in our market enter the space. At BoohooMan we see a future for digital fashion. This collection is us dipping our toe into the vast and complex landscape of the metaverse.”

Kamani said the company has “great expectations” for future NFT collections, collaborations, digital fashion pieces, games and more.

Net Sales: Net sales at Boohoo jumped 10 percent to 506.2 million pounds ($670.9 million) in the third quarter, up from the 460.7 million pounds ($610.6 million) taken in during the year-ago period. On a two-year basis, the retailer saw net sales jump 53 percent.

Breaking down by market, the company’s home country of the U.K. had the strongest results, with sales jumping 32 percent to 320.3 million pounds ($424.5 million), from the 243.6 million pounds ($322.8 million) generated in last year’s third quarter. From 2019’s totals, Boohoo sales soared 78 percent.

European sales dipped 12 percent to 53.9 million pounds ($71.4 million), U.S. sales declined 14 percent to 104.6 million pounds ($138.6 million) and the rest-of-world market plummeted 21 percent to 27.4 million pounds ($36.3 million).

Boohoo Group does not report net profit or earnings per share on a quarterly basis.

CEO’s Take: Lyttle noted that deliveries take an average of seven to eight days in Europe, doubling the three-to-four day timeframe prior to Covid.

“Delivery times are stable, so they’re not getting any worse,” Lyttle said. “I suppose we thought on Nov. 8 with the U.S. reopening international travel that would have improved things, but we haven’t seen that from a lead time, and equally from a cost point of view.”

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