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Boohoo, Joules Face No End of Problems

Problems in the supply chain as well as high return rates and inflation are some of the challenges muting business at British retailers.

China’s Covid-19 lockdowns are keeping goods from reaching end markets. Australia and the U.S. moved to raise interest rates and the European Union could follow suit in Q3 in a new blow to business and spending.

Amazon chief financial officer Brian Olsavsky similarly noted inflation’s impact on consumer spending when he recently said the e-commerce giant now has “excess” fulfillment and transportation network capacity after the company rapidly expanded to meet pandemic demand.

These headwinds are likely to weigh on companies in the coming months.

Boohoo calls out customer returns

In a Nutshell: Customer returns at Boohoo spiked in the second half, while rising shipping costs and international delivery delays cloud the outlook for the rest of the year.

“Growth has however been impacted by three factors: firstly, returns rates increased significantly in the second half of the year ahead of both expectations and pre-pandemic levels; secondly, consumer demand has been subdued as a result of lockdowns in key markets throughout the year; and thirdly, our proposition internationally has been negatively impacted as a result of extended delivery times,” Boohoo Group CEO John Lyttle said.

Organic growth and brand acquisitions helped the British online fashion platform attract 20 million active customers, up 10 percent from 2021. Last year, the company acquired Debenhams, which it has relaunched as a digital platform, and relaunched Dorothy Perkins, Wallis and Burton as well.

The company opened two new distribution centers and is making progress on its automation project in Sheffield, which is expected to go live in the current fiscal year ending February 2023. Boohoo previously said it will open a distribution center in the U.S.

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Looking ahead, Lyttle said Boohoo will increase its sourcing from near-shore markets, and leverage existing flexibility among its diverse supplier base to reduce lead times. The CEO said the company will also operate with lower inventory levels and increase its open-to-buy so it has greater flexibility to react to mid-season demand changes. The company doesn’t see the steep return rates dropping off this year.  Revenue growth is projected to be flat in the first half, the result of sustained freight-related headwinds and uncertain consumer demand.

Net Sales: Revenue for the year ending February 2022 rose 14 percent to 1.98 billion pounds ($2.47 billion) from 1.75 billion pounds ($2.18 billion).

International revenue made up 39 percent of total sales, down from 46 percent in 2021. In addition, gross margin fell to 52.5 percent from 54.2 percent last year.

Earnings: Profit before tax shrank 94 percent to 7.8 million pounds ($9.74 million) from 124.7 million pounds ($155.6 million).

CEO’s Take: “Our focus over the past two years has been on investing to build a strong platform, with the right infrastructure, supported by increased capacity to better serve our customers,” Lyttle said. “In the year ahead we are focussed on optimising our operations through increasing flexibility within our supply chain, landing key efficiency projects and progressing strategic initiatives such as wholesale and our US distribution centre. This will ensure that the group is well-positioned to rebound strongly as pandemic-related headwinds ease.”

Joules expects profit decline, leading to CEO Exit

Joules reported a decline in full-price selling thanks in part to inventory delays. The home and garden retailer’s profit performance missed management’s expectations despite strong revenue growth for the 13 weeks from Feb. 1 to May 1, 2022, representing the third quarter of Joules’ current financial year.

As a result CEO Nick Jones will step down during the first half of the next financial year ending July 31, 2023 after a three-year stint with the British lifestyle group. Joules said its board will begin an immediate search for a successor.

The company claims it’s making good progress against plan to simplify the business and optimize costs. Changes include exiting the traditional wholesale model in the U.S. and European Union from Spring-Summer 2023, trimming production lead times by “up to four months” to increase newness and drive full-price sales, and diversifying the supplier base, including reducing its exposure to China.

“In addition to creating a more balanced supplier base, this importantly allows the Group to benefit from shorter lead times from countries including Turkey. Whilst the Group is not currently experiencing significant delays as a result of the latest Covid-19 related lockdowns in China, management is closely monitoring developments and any impact these might have on the Group’s operations,” Joules said.

Given ongoing challenges, the company said it is “cautious about its near-term outlook.”

“Joules is a fantastic brand with great people, loyal customers, and a differentiated product offering. Underpinned by the strategic actions we are taking to optimise the business, Joules will emerge stronger and better positioned to achieve long-term, profitable growth,” Jones said.