Fast-fashion platform Shein reported an adjusted net profit of $228 million for the second quarter, marking a 67% decline from a year earlier as soaring freight costs and regulatory headwinds eroded margins in its key international markets.
European and US Sales Contract Amid Regulatory Pressures
European sales dropped 13.9% to $3.77 billion in the quarter ending June 30, driven by a sharp contraction as Shein raised prices and cut online advertising. Meanwhile, US revenue fell 6% to $2.5 billion, following earlier pricing adjustments necessitated when the US administration ended duty-free de minimis access for low-value e-commerce shipments.
Despite contractions in its two largest markets, overall quarterly revenue rose 0.9% to $11.08 billion, supported by growing sales in Latin America. However, the financial squeeze weighed heavily on the company’s stock value. Since its Hong Kong launch at an offer price of HK$48.56 per share, Shein’s shares have dropped 27.3%.
Escalating Fulfillment Costs and Logistics Expansion
Conflict in the Middle East drove up jet fuel and freight expenses for the company, which relies on air freight to ship low-cost items globally. Jefferies analysts noted that Shein’s 18.1% jump in fulfillment costs exceeded expectations and arrived before the EU parcel fees officially took effect, leading them to estimate that earnings landed more than 10% below the low end of the prospectus range.
To mitigate supply chain bottlenecks and prepare for European regulatory changes, Shein has invested heavily in regional warehouse infrastructure. The company opened a 740,000-square-metre logistics hub in Wroclaw, Poland, in December 2024, and leased an additional 66,000 square metres of warehouse space through industrial real estate firm CTP earlier this year.
Strategic Shift Toward Higher-Priced Brands
In response to compressing margins, Shein Chief Executive and Chair Yangtian Xu announced plans to pivot toward higher-priced apparel categories and expand the company’s family of brands, potentially through acquisitions. As the product mix shifts toward higher price points, the platform’s overall average selling price will rise, with the vision of evolving into a diversified brand collection serving multiple price points and consumer occasions.
Further regulatory challenges loom on the horizon for the platform. This upcoming charge threatens to add further pressure to Shein’s low-cost operating model as the company works to adapt its pricing and inventory strategies.