Boohoo faces £34m setback as fast-fashion retailer pulls out of US distribution

Boohoo is to close its US distribution centre just over a year after its launch, triggering an impairment loss that analysts believe will cost the company a minimum of £34m.

The fast-fashion retailer, which owns brands including Pretty Little Thing and Coast, told shareholders on Wednesday that it would stop supplying U.S. customers from the local distribution center it launched in August 2023.

Instead, it will supply them directly from the UK.

The Pennsylvania site had been touted as a key pillar of growth for Boohoo, which like rival Asos has struggled to gain traction in the US.

Boohoo said the move reflected “a strategy to reposition the group for sustainable and profitable growth” and will lead to US customers enjoying a broader product offering.

The group believes that supplying the US via its state-of-the-art automated warehouse in Sheffield, which also went live last year, will lead to “a significant reduction in ongoing costs in the medium term”.

But Boohoo warned it faces a reduction in its balance sheet “against investments and costs associated with operating in the US, as well as certain exceptional and one-off cash costs”.

Boohoo shares Shares in investor favourite Boohoo fell 1.9% to 28p in early trading, taking losses for 2024 to more than 25%. Its share price has plunged 93% since its June 2020 peak.

Boohoo, which posted a £160m pre-tax loss last year, has invested £64.8m in infrastructure in 2023, largely reflecting the launches of sites in Sheffield and the US.

Analysts at Peel Hunt, who back the move because they believe it will improve Boohoo’s long-term results, said the group would likely face “modest cash costs from the exit in addition to the write-down of capital expenditure of approximately £34m”.

Katie Cousins, equity research analyst for digital and consumer technology at Shore Capital, said: ‘We anticipate the financial impact of the decision will result in a balance sheet write-down relating to the US lease extending to 2032 at a cost of $8m in (2025) and the capital investment of approximately £34m made in the US (distribution centre).

‘There will also be a one-time cash out-of-pocket cost (which is expected to be in the mid-single digits).’

The fight to break away from the US

Boohoo has not published detailed performance figures for some time, but last year’s annual results demonstrated the difficulty the group has had in maintaining momentum in the US.

The group’s total US sales fell 29 per cent to £177.4m in the 12 months to February 28.

Similarly, rival Asos saw US sales fall 25 per cent in its first half, reflecting the six months to the end of March.

The Peel Hunt analyst said Boohoo’s initial decision to launch a direct distribution centre in the US was “based on sales figures from three years ago”, when the group was boasting double-digit growth in the US on revenues of £450m.

Analysts had a target price of 75p for Boohoo but have now put the group under review.

They added: ‘Volumes are now nothing like what the company originally planned, and in the UK, the fully automated and highly efficient Sheffield site is running at excess capacity.

‘In addition to lower volumes, the US product offering represents approximately 60 per cent of the total UK offering, and evidence shows improved sales and conversion thanks to US access to that full range.

We believe the tariff benefit of moving out of the US warehouse and the increased cost of distribution to the US from the UK more than offset each other, while the distribution efficiency of going through Sheffield is worth 500-600 basis points.

‘The other part of the equation is that offering the full UK range in the US is also a significant benefit to sales and conversion.’