HONG KONG, Sept 29 (Reuters) – Shares of fast-fashion retailer Shein tumbled as much as 14% on Tuesday after it reported a 67% fall in quarterly profit in its first post-IPO results, fuelling investor concerns over margin pressure and slowing growth.
Investors and analysts have been closely watching for signs that growth is moderating from the breakneck pace that propelled Shein’s rapid rise and underpinned its plans for a stock market listing.
“Shein is still growing orders and diversifying across markets, but the scale of the margin compression and the weakness in Europe raise questions over how quickly it can return to a combination of stronger growth and improving margins,” said Jianggan Li, CEO of Singapore-based consultancy Momentum Works.
Jefferies analysts estimated earnings for the quarter ended June 30 came in more than 10% below the low end of the range implied by the China-founded and Singapore-headquartered company’s prospectus.
The share plunge left Shein with a market value of about $17 billion as of the midday break on Tuesday, down from roughly $26 billion when it went public in Hong Kong on September 1. The stock was down 10.9% at HK$31.44.
Adjusted net profit was $228 million for the second quarter and its margin was squeezed to just 2.1% from 6.2% last year as conflict in the Middle East pushed up jet fuel and freight costs for the retailer that sends cheap clothes by air to shoppers around the world.
Sales in Europe dropped sharply after Shein hiked prices and cut online advertising in anticipation of €3 fees the European Union imposed on low-value e-commerce parcels starting July 1.
Shein CEO and Chair Yangtian Xu said on Monday a key priority was increasing the amount of inventory in Europe and the company plans to push into higher-priced clothes that will boost its profitability.
Known for selling $5 dresses and $10 jeans and running permanent discounts, Shein was already forced to raise prices in the US last year when the Trump administration ended de minimis – duty-free access for low-value e-commerce parcels.
Shein has said the European fees could have a bigger impact than the end of de minimis in the US.
($1 = 7.8443 Hong Kong dollars)
(Reporting by Anne Marie Roantree, Selena Li and Yantoultra Ngui; Editing by Christian Schmollinger, Tom Hogue and Jamie Freed)
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