Shein's first results as a public company: profit down 67%, Europe sales down 14%, U.S. down 6%

Shein's adjusted net profit fell 67% to $228 million in the quarter ended June 30, in its first results since listing in Hong Kong on September 1, Reuters reported. Its profit margin shrank to 2.1% from 6.2% a year earlier as the conflict in the Middle East pushed up jet fuel and freight costs, and fulfillment costs rose 18.1%. Jefferies said earnings landed more than 10% below the low end of the range implied by the IPO prospectus, according to Reuters.

The shares were at HK$35.28, about 27% below the HK$48.56 IPO price, Reuters said.

Where the growth went

Total revenue rose 0.9% to $11.08 billion. Europe fell 13.9% to $3.77 billion and the United States fell 6% to $2.5 billion, Reuters reported, with Latin America growing.

Work those figures backwards and the shift is stark. Europe a year ago would have been about $4.38 billion and the U.S. about $2.66 billion, so the two markets together lost roughly $770 million of sales. Total revenue still rose by about $100 million, which means everything outside Europe and the U.S. grew by roughly $870 million, or a little over 20%, to about $4.8 billion. Those are our calculations from the percentages Reuters published, not figures Shein broke out, but the direction is not in doubt: Europe and the U.S. shrank and the rest of the world carried the quarter.

Why Europe fell

Reuters said Shein raised prices and cut online advertising ahead of the European Union's new fee of 3 euros on low-value e-commerce parcels, which took effect July 1. That means the quarter reported here was the run-up to the fee, not a full quarter under it. CEO and chair Yangtian Xu said adding inventory inside Europe is a priority, pointing to warehouse investment in Poland, including a logistics hub in Wroclaw opened last December. Shipping in bulk to a European warehouse, rather than parcel by parcel from China, is how a seller gets out from under a per-parcel fee.

Who it actually hits

For an independent clothing boutique or gift shop, the ultra-cheap import is the price it competes against. Shein's own numbers, and its explanation of them, show it charging more in Europe and selling less in the U.S., at a 2.1% margin that leaves little room to cut again. That is not a guarantee of relief for small retailers, but it is the first set of public quarterly numbers showing the model's costs rising faster than its sales.

112,779 independent retail stores are listed on CheckThisBiz, a directory of 7,704,724 independent US businesses, including 14,307 in CA, 9,799 in TX, 9,064 in NY. Chains and franchises are excluded from that count, so these are the owner-operated businesses that actually apply for funding.

Xu said Shein aims to become "a richly diversified brand collection" covering multiple price points, including higher-priced brands and possible acquisitions, according to Reuters. Related: Adobe's holiday online sales forecast and more stock news.

Sources: Reuters via MarketScreener. Year-ago regional figures and the rest-of-world estimate are Chronicle calculations from the reported percentages. This is market information, not investment advice.