Shein Global Holdings Ltd. experienced a significant downturn in its share price after its inaugural earnings report as a public company. Shares fell by as much as 12.1% to a new record low, with a 6% drop specifically attributed to a 67% fall in quarterly profit. This decline has wiped out a substantial portion of its market value, which now stands at approximately $16.8 billion, down from about $26 billion at its listing in Hong Kong on September 1. This is also a stark contrast to its peak valuation of roughly $100 billion in 2022.
The disappointing results showed a 53% decline in first-half operating income, with adjusted net profit for the second quarter at $228 million. The company's margin was squeezed to just 2.1% from 6.2% last year. Factors contributing to the profit slump include escalating expenses, softening demand, and increased jet fuel and freight costs, partly due to conflict in the Middle East. Jefferies analysts estimated that Shein's earnings landed more than 10% below the low end of the range implied by its prospectus.
Shein's first-half revenue growth was only 1%, extending a deterioration in profitability seen earlier in the year. The company had previously warned in its IPO filing that the war in Iran would impact its first-half performance. CEO Yangtian Xu indicated that a key priority is to increase inventory in Europe. Investors are now closely watching Shein's second-half guidance for clarity on whether the operating income decline represents one-time costs or structural margin erosion. The macro variable of US-China trade framework and potential tariffs on Chinese-origin apparel also significantly impacts Shein's cost structure, as a key market, the European Union, also abolished its de minimis customs duty exemption from July.
