Boohoo Group Plc plummeted to a five-year low after the UK online clothing retailer slashed its earnings and sales projections because customers are returning more clothes and higher freight costs hurt demand from US buyers.

Sales growth will be no more than 14 percent, down from an earlier projection of as much as 25 percent, Boohoo said Thursday. Demand is slowing down as shopping patterns come back to normal. The shares fell as much as 20 percent.

Online retailers, including Boohoo’s rival Asos Plc, were buoyed during lockdowns as customers bought more casual clothes for working from home and were less likely to send them back. Boohoo is known for its party-wear outfits, which generally do have a higher returns rate. Its mostly younger shoppers can buy multiple outfits to try on for an event and then only keep the one they choose to wear.

Boohoo is already trying to recover from a labour supply scandal in 2020 which precipitated a comprehensive overhaul of governance at the e-commerce retailer.

The owner of the PrettyLittleThing brand forecast sales growth of 12 percent to 14 percent this fiscal year, down from an earlier prediction of 20 percent to 25 percent. The company said it expects an adjusted earnings margin of 6 percent to 7 percent in the current fiscal year. The previous guidance was 9 percent to 9.5 percent.

Boohoo’s growing business in the US has also been hard hit by supply chain disruptions and steep freight costs. The group had previously warned in September, when it lowered its forecasts for sales and profitability, that it was being impacted by higher shipping costs. The supply snags have pushed its delivery times for customers in the US to as much as 10 days, which has dented demand as shoppers switch to retailers with faster fulfilment speed.

In a sign of how global supply chain disruptions and rising shipping costs are hitting retailers, Boohoo said it had experienced inbound freight cost inflation of £20 million. It was also hit by £45 million of cost inflation in shipping goods to international markets, including the US, which is a key growth area for Boohoo.

The online retailer also expects an exceptional cash hit of about £33 million ($44 million), up from a previous estimate of £22.5 million, primarily due to warehousing costs and “new brand restructuring.”

Chief executive John Lyttle said he is highly confident about Boohoo’s future growth prospects and maintained the group’s medium-term margin guidance of 10 percent. He said the current “headwinds” are short-term and transitory in nature although warned that the emergence of Omicron added further uncertainty to the outlook with even more shopper returns likely in January and February.

By Deirdre Hipwell

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