Boohoo has vowed to "rebound strongly" after its pre-tax profits plunged by more than 90% during its latest financial year.
The Manchester-headquartered fashion giant said the slump was due to costs related to the Covid-19 pandemic and a rise in return rates.
The company has posted profits of £7.8m for the 12 months to February 28, 2022, down from the £124.7m it reported during the prior year.
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The fall was despite Boohoo's revenue increasing from £1.745bn to £1.982bn.
Boohoo's brands include BoohooMAN, Karen Millen, Nasty Gal, PrettyLittleThing, Coast, Misspap, Oasis, Warehouse, Burton, Wallis, Dorothy Perkins and Debenhams.
In a statement issued to the London Stock Exchange, the company said it had suffered a rise in distribution costs while customer demand decreased.
Bosses also warned that they expect high costs to persist throughout the rest of this year but have a series of cost-cutting initiatives in place to manage the business.
Despite the cost-cutting, prices for products could also rise, with the company only committing to "mitigate where possible before passing prices on to consumers".
Chief executive John Lyttle said: "Over the past two years, we have significantly increased market share in our core geographies of the UK and the US, and we have grown active customer numbers by 43% across the group to 20 million.
"Our focus over the past two years has been on investing to build a strong platform, with the right infrastructure, supported by increased capacity to better serve our customers.
"In the year ahead we are focussed on optimising our operations through increasing flexibility within our supply chain, landing key efficiency projects and progressing strategic initiatives such as wholesale and our US distribution centre.
"This will ensure that the group is well-positioned to rebound strongly as pandemic-related headwinds ease."
Boohoo added that its plans to introduce automation at its Sheffield warehouse are "on track" and it is also set to open a new distribution centre in the USA in FY 2024.
Boohoo revealed that, since the easing of restrictions, customers have flocked back to physical stores but those using its services have increased the number of garments being returned.
Return rates are a key metric for online fashion retailers and there had been a significant reduction during the pandemic.
But, with restrictions easing, customers have started going out more and return rates have increased to above the level seen before the pandemic.
Boohoo also revealed that return rates have been so high in the past three months that this has led to sales falling compared with a year ago.
The rising costs of deliveries for the company - including a reduction in airfreight capacity and higher shipping prices - along with lower-than-anticipated growth contributed to a £60m hit to profits, it added.
Boohoo said it also expects the pandemic-related external factors that affected last year "will continue for the year ahead".
To combat the falls, bosses said they will be targeting sourcing from suppliers closer to the UK, reducing inventory levels and investing in new distribution hubs in the US.
Boohoo will also upgrade its Debenhams technology platform and sign up new wholesale partnerships.
Analyst Julie Palmer, partner at Begbies Traynor, said: "The outlook isn't pretty, with inflation a real concern for this outfit, and falling consumer confidence may mean customers thinking twice before refreshing their wardrobes as we head into summer.
"Throw in the costs of a new factory in Leicester after allegations two years ago the company wasn't paying workers the minimum wage, along with spending on new distribution centres as it prepares for hoped-for expansion, and Boohoo has a lot of ground to make up.
"Boohoo is going to have to come up with some new looks if it is going to stay relevant as it doesn't take long for consumers to shop around for faster, more relevant alternatives these days."
