Online fashion retailers ASOS, Boohoo weighed down by returns

By James Davey and Paul Sandle

LONDON (Reuters) -British online fashion retailers ASOS and Boohoo cautioned on Thursday that they are being hurt by rising product returns as consumers battle inflation and shift to pre-pandemic behaviour, hammering their shares.

ASOS shares slumped 29% by 1049 GMT after it warned it would miss profit forecasts due to a spike in returns in the UK and Europe over the latter part of its quarter to May 31, with inflationary pressures exacting a toll on its 20-something customers.

Boohoo shares were down 14% after it reported an 8% dip in first-quarter sales that partly reflected higher returns.

Both stocks are down 83% over the last year.

Returns are a big problem for an online fashion retail model already battered by supply bottlenecks, slower product deliveries and higher freight and labour costs.

Higher returns add to warehousing and delivery costs and mean increased markdowns and labour inefficiency to clear the returned stock.

“We know that the sharp increase in return rates during the period happened at the same time that consumers started to feel the pinch,” Jose Antonio Ramos Calamonte, newly promoted from chief commercial officer to ASOS CEO, told analysts.

He noted that in Britain, ASOS saw a sharp increase in return rates coinciding with increases in national insurance contributions and increased energy, food and fuel prices.

“Guess this is what they mean when they call it a baptism of fire,” he said.

ASOS said the higher returns in the UK had offset a strong performance in occasion-wear amidst an uplift in demand driven by holidays, weddings and events.

Boohoo CEO John Lyttle said its higher returns, running 4-6% above pre-pandemic levels, were more about its customers returning to pre-pandemic buying patterns.

“Through the pandemic we were all wearing athleisure, looser fitting, less fit sensitive, and now we’re clearly back to dresses and particularly occasion dresses tend to be a little bit more fitted,” he told Reuters.

“So you have a higher return rate coming with that change from athleisure into dresses.”

FREE RETURNS

ASOS COO Mat Dunn said free returns was a “no regret” decision taken to optimise its customer proposition. “We still believe that free returns are a core part of our offer.”

Boohoo said that while a formal review of its returns policy was not underway it was watching what competitors were doing.

Last week Swedish online clothing pure-play Boozt also warned on profit.

In contrast, H&M, the world’s second biggest fashion retailer, on Wednesday posted a forecast-beating 17% jump in March-May sales, joining main rival Inditex in reporting a rebound in demand.

ASOS’s third quarter revenue rose 4% to 983.4 million pounds and it forecast full year growth of 4% to 7% in the year to

end-August, with adjusted pretax profit coming in between 20 million and 60 million pounds ($24-$73 million).

Analysts had anticipated profit of 83 million pounds, according to a consensus compiled by Refinitiv.

Boohoo’s first quarter revenue fell 8% to 445.7 million. UK sales fell 1%, but returned to growth in May. It maintained its guidance for the full year.

Boohoo had warned last month that sales would fall in its first quarter. It forecast a return to growth in the second quarter and improved performance in the second half.

($1 = 0.8234 pounds)

(Reporting by James Davey and Paul Sandle; editing by Elizabeth Piper and Mark Heinrich)