By Katrina Hamlin
Shein’s HKEX:625 listing is a full-on fashion crisis, but it may yet get worse. The clothing retailer's stock tumbled as much as 10% on its Hong Kong debut, putting a $24 billion price tag on the group, some 75% below its peak of $98 billion in 2022. Those hoping the end of the company's painful, years-long attempts at an IPO will draw a line under its valuation woes are likely to be mistaken.
That's because it already requires a series of optimistic assumptions that the business quickly returns to its former strength, despite plenty of challenges. The European Union, for instance, in July introduced a €3 levy on low-value parcels that are a mainstay of Shein's business; a similar U.S. move last year helped push fulfilment costs up to 48% of revenue in the first quarter from 43% a year earlier.
Shein has suggested passing on some costs to consumers. But EU shoppers are price sensitive: overall low-value exports from China to the bloc plummeted 54% in July from a year earlier after the introduction of the new charges, per consultancy Trade and Transport.
The company is trying new tactics, such as offering support to brands trying to grow their e-commerce business. Those service fees grew an encouraging 9% in the first quarter – but the new venture makes up just 14% of Shein’s top line.
Yet the IPO values the company as if revenue, the net margin, or both are set to quickly recover from tariff-induced slumps. Shein's first-quarter top line only grew 1% between last year and this year, while the net margin, adjusted for one-offs, was a lowly 2.5%. Even if sales increase 8% over 2027, based off annualising the January-March showing for this year, and the margin improves to 3.8% – the company's average between 2023 and 2025, excluding one-offs – that'd mean applying a punchy multiple of 16 times earnings to get to a $24 billion valuation.
Sure, that's lower than the 24 times Zara's Inditex BME:ITX wears. But Shein's financial performance is nowhere near as chic. It's closer to e-commerce companies like Alibaba NYSE:BABA, PDD NASDAQ:PDD, JD.com HKEX:89618 and Vipshop NYSE:VIPS, which trade on an average of 9 times, per Visible Alpha.
That would value the company run by Sky Xu closer to $15 billion. Even that seems generous, since more revenue drops to the bottom line at most of those peers.
At the very least, Xu can find solace in finally getting the IPO done – and may pull off an earnings turnaround surprise. Absent that, though, Shein's humbling listing is unlikely to be the end of the pain.
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CONTEXT NEWS
Shein Global shares fell to a low of HK$43.72 during early trading after its IPO in Hong Kong on September 1, some 10% below the offer price.
On August 31, the fast-fashion retailer priced its shares at HK$48.56, raising HK$13.6 billion ($1.7 billion).