Bosses said they saw a fall in customer demand with pre-tax profits falling from £124.7 million to £7.8 million in just 12 months.
The fashion giant said it expects high distribution costs to persist throughout the rest of the year, resulting in potentially pricier products for customers.
The news caused a drop of over 15 per cent in company shares by mid-morning on Wednesday 4 April, but Boohoo says it has a series of cost-cutting initiatives in place to manage business.
These include sourcing from suppliers closer to the UK, reducing inventory levels and new wholesale partnerships.
The company also revealed a dramatic rise in return rates leading to sales falling compared to last year.
With customers purchasing more after the pandemic and multiple lockdowns, return rates rose to above pre-pandemic levels with a particular increase in the last three months.
Boohoo representatives said: “In our largest market, the UK, growth has remained strong, compounding on the exceptional growth delivered in the previous year.
“Growth has however been impacted by three factors,” they continued. “Firstly, returns rates increased significantly in the second half of the year ahead of both expectations and pre-pandemic levels.
“Secondly, consumer demand has been subdued as a result of lockdowns in key markets throughout the year; and thirdly, our proposition internationally has been negatively impacted as a result of extended delivery times.”
They added that they expect pandemic-related external factors that affect last year’s sales to “continue for the year ahead”.
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,” she continued.
In 2020, the fashion retailer faced a modern slavery investigation after reports of a sweatshop in Leicester where workers were paid as little as £3.50 an hour.
An independent review found that while Boohoo had not committed any criminal offences, it did ignore allegations of poor working conditions and did not do enough to safeguard employees. In response, Boohoo terminated contracts with suppliers, is working with organisations such the Gangmasters and Labour Abuse Authority and Slave Free Alliance, and has expressed an enhanced commitment to worker welfare.
Ms Palmer added: “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.”
In a statement, Boohoo said: “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 focused 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.”
Additional reporting by PA
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