Shein's shares dropped more than 6% on Tuesday after the fast-fashion retailer reported a significant 67% fall in quarterly adjusted net profit to $228 million for the second quarter. This performance was below analyst expectations, with Jefferies analysts estimating earnings were more than 10% below the low end of the range implied by Shein's prospectus, fueling investor concerns over margin pressure and slowing growth.
The company's profit margin was squeezed to just 2.1% from 6.2% a year ago. This decline was attributed to increased jet fuel and freight costs, largely due to conflict in the Middle East. Additionally, sales in Europe decreased by nearly 14% to $3.77 billion, and US revenue fell 6% to $2.5 billion, as Shein raised prices and cut online advertising in anticipation of new 3-euro fees on low-value e-commerce parcels imposed by the European Union starting July 1.
Since its September 1 stock market debut in Hong Kong, Shein's shares have fallen 27.3% from the offer price of HK$48.56 ($6.19). The stock was trading around HK$33.40 on Tuesday. Shein's CEO, Yangtian Xu, stated that a key priority is increasing inventory in Europe and pushing into higher-priced clothes to boost profitability, as the company aims to diversify its brand collection.
Overall sales increased by a modest 0.9% from a year ago, reaching $11.08 billion for the second quarter, with growth in Latin America offsetting declines in its major markets. Fulfillment costs jumped 18.1%, exceeding Jefferies' expectations and highlighting the pressure on Shein's business model even before the full impact of European fees. The EU is also planning an additional 2-euro handling fee from November 1, adding further cost pressure.
