By Helen Reid
Sept 28 (Reuters) - Fast-fashion platform Shein reported plunging profit and sliding European sales on Monday in its first results as a public company, feeding investor worries over margin pressure and slowing growth.
Adjusted net profit was $228 million for the second quarter, down 67% from a year ago, 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 too in the quarter to end-June as Shein hiked prices and cut online advertising in anticipation of 3-euro fees the European Union imposed on low-value e-commerce parcels starting July 1.
Shein reported $11.08 billion in sales for the second quarter, with Europe revenue down 13.9% to $3.77 billion and US revenue falling 6% to $2.5 billion. Overall sales were up 0.9% from a year ago as growth in Latin America offset declines in Shein's biggest markets.
Since its September 1 debut in Hong Kong, Shein's shares have dropped 27.3% from the offer price of HK$48.56 apiece, and the continued profit squeeze gave little to encourage investors.
"We estimate earnings landed more than 10% below the low end of the range implied by the prospectus," Jefferies analysts wrote.
Shein's 18.1% jump in fulfillment costs was well above Jefferies' expectations and was concerning, they said, given this was already before the European fees kicked in.
In a statement, Shein CEO and Chair Yangtian Xu said a key priority was increasing the amount of inventory in Europe.
Shein has been investing in warehouse space in Poland, opening a logistics hub in Wroclaw with 740,000 square metres of warehouse space in December last year. Industrial real estate firm CTP said it has this year leased an additional 66,000 square metres of warehouse space to Shein in Poland.
SHEIN PLANS SHIFT TO HIGHER-PRICED BRANDS
Xu also said Shein plans to push into higher-priced clothes that will boost its profitability, and hinted at the company's strategy of expanding its family of brands, including through acquisitions.
"As the product mix shifts towards brands at higher price points, the platform’s overall average selling price will rise accordingly," he said in a statement. "Our vision is to become a richly diversified brand collection that meets consumers’ varied needs across multiple price points and occasions."
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 ecommerce parcels - and this year faces the same challenge in Europe.
Shein has said the European fees could have a bigger impact than the end of de minimis in the US. The 3-euro fees apply per product category, adding up to 15 euros if a shopper buys five different types of item in one order.
The EU is also planning an additional 2-euro handling fee on low-value ecommerce parcels, to be implemented from November 1, adding to the pressure on Shein's business model.
(Reporting by Sneha Kumar, Shivangi Lahiri, Kumar Tanishk in Bengaluru, Helen Reid in London; Editing by Shinjini Ganguli, Jonathan Ananda, Emelia Sithole-Matarise and David Gregorio)
