Shares of fast-fashion retailer Shein fell more than 6% on Tuesday after the company reported a 67% decline in quarterly profit, raising concerns among investors about mounting margin pressure and slowing growth, according to a report by Reuters.
Adjusted net profit stood at $228 million in the second quarter, while the company's profit margin narrowed sharply to 2.1% from 6.2% a year earlier, according to Reuters.
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The margin squeeze came as conflict in the Middle East drove up jet fuel and freight costs. Shein relies heavily on air shipments to deliver its low-priced clothing to customers around the world, making the company vulnerable to higher transportation expenses.
Analysts at Jefferies estimated that Shein's quarterly earnings were more than 10% below the low end of the range implied by the company's prospectus, the report stated.
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The latest decline adds to a weak performance for Shein's shares since their September 1 stock market debut in Hong Kong. The stock had fallen 27.3% from its offer price of HK$48.56 ($6.19) through Monday's close and was trading at around HK$33.40 on Tuesday.
Shein Chief Executive Officer and Chair Yangtian Xu said on Monday that increasing inventory levels in Europe was a key priority for the company. Shein also plans to expand its offering of higher-priced clothing, a strategy aimed at improving profitability.
The company's latest results underscore the challenges facing its business as higher logistics costs weigh on margins while investors assess whether Shein can sustain growth following its Hong Kong listing, according to the report.
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