Shein Net Profit Drops 67 Percent to 228 Million Dollars as Air Freight Squeezes Margins
In this article (9)
Shein reported a 66.6 per cent slump in second-quarter adjusted net profit to $228 million, hit by surging air cargo rates and falling revenue in Western markets.
Net profit margins narrowed to 2.1 per cent from 6.2 per cent a year earlier, even as the platform fulfilled 298 million orders between April and June.
Group revenue inched up 0.9 per cent year-on-year to $11.08 billion during the period. Active customers climbed to 291 million over the 12 months to June, up from 254 million, but shoppers spent less per order while overhead surged.
Higher shipping costs hit the bottom line
Fulfillment costs surged 18.1 per cent during the three-month period. Shein relies on direct air shipments from contract factories in southern China to consumers worldwide, leaving operating margins exposed to sudden swings in aviation fuel and commercial cargo pricing caused by Middle East route disruptions.
Growth in Latin America compensated for contractions in primary markets, preventing top-line sales from shrinking outright. Total order volume increased by 21 million transactions compared with the second quarter of last year.
Tariffs and parcel fees bite in the West
Revenue from Europe fell 13.9 per cent to $3.77 billion as Shein pulled back on digital marketing spend and lifted retail prices ahead of regional regulatory changes. The European Union introduced a flat 3-euro customs fee on low-value e-commerce packages on July 1.
“Trading has dropped 27.3 per cent since the debut, reflecting investor concern over margin erosion and sluggish Western revenue.”
United States revenue declined 6 per cent to $2.5 billion. Price adjustments followed the removal of de minimis duty exemptions by US authorities, which had previously allowed parcels valued under $800 to enter the country free of import tariffs.
Warehouses and premium labels
Cross-border operators in Asia now face the end of the frictionless air-freight model that built ultra-fast fashion. Temu and AliExpress face identical regulatory scrutiny in Brussels and Washington, but Shein carries heavier direct inventory risk as it attempts to reposition itself toward higher-priced apparel categories.
Shifting higher up the price ladder creates direct competition with established European apparel chains such as Inditex and H&M without guaranteeing the same local store network or brand equity. Shein must absorb heavy fixed property costs across Europe while defending its low-cost apparel base against newer discount apps.
Hong Kong stock slides
The company listed in Hong Kong on September 1 at an offer price of HK$48.56 per share. Trading has dropped 27.3 per cent since the debut, reflecting investor concern over margin erosion and sluggish Western revenue.
To reduce dependence on individual air parcels, the group is expanding land-based logistics hubs inside the European Union. Shein opened a 740,000-square-metre distribution facility in Wroclaw, Poland, in December and leased an additional 66,000 square metres of warehouse space from industrial developer CTP earlier this year.
Investors now await third-quarter earnings figures in November, which will show the full impact of the European Union’s 3-euro parcel surcharge during the peak autumn trading period.
Questions & Answers
Q.What caused Shein's net profit to drop so significantly in the second quarter?
What caused Shein's net profit to drop so significantly in the second quarter?
Adjusted net profit fell by 66.6 per cent due to surging air cargo rates and falling revenue in Western markets. Higher shipping costs, including an 18.1 per cent increase in fulfilment costs, squeezed their margins.
Q.How did new regulations in the EU and US impact Shein's revenue from these regions?
How did new regulations in the EU and US impact Shein's revenue from these regions?
European revenue dropped 13.9 per cent due to a new 3-euro customs fee on low-value packages and increased retail prices. US revenue declined 6 per cent following the removal of de minimis duty exemptions.
Q.What is Shein doing to reduce its reliance on air freight and improve its logistics?
What is Shein doing to reduce its reliance on air freight and improve its logistics?
Shein is expanding its land-based logistics hubs within the European Union. This includes opening a large distribution facility in Poland and leasing additional warehouse space there.
Q.What impact have Shein's recent financial results and strategic shifts had on its stock performance?
What impact have Shein's recent financial results and strategic shifts had on its stock performance?
Shein's stock, listed in Hong Kong on September 1, has dropped 27.3 per cent since its debut. This reflects investor concern over margin erosion and sluggish Western revenue performance.
Reader pulse
Shein's strategy shift is:
18,491 votes so far