Boohoo has indicated its clothing prices are likely to rise this year after profits almost halved amid weakening consumer demand and rising costs. The online fashion specialist said pre-tax profits fell 94% to £7.8m in the year to 28 February. Sales rose 14% to almost £2bn but growth was down more than 40% in the previous year, as deliveries overseas were held up by disruption to international shipping and wavering demand during the coronavirus pandemic. The cost of shipping and flying in goods from factories was up £22m, while the bill for posting them out to customers rose £38m. Marketing costs also soared as Boohoo relaunched new brands bought during the pandemic, including Debenhams, Dorothy Perkins and Burton. Profits and sales took a hit as customers returned more unwanted items than they had during the pandemic lockdowns, when the group sold more stretchy garments, such as leggings and hoodies, where an exact fit was less important. An increase in nights out since the removal of restrictions on socialising has boosted sales of dresses ahead of pre-pandemic levels as Boohoo’s young shoppers go out to clubs, parties and weddings. Blazers and smart jackets are also selling well. The company said it expected to continue to face increased costs in the year ahead and was aiming to “maximise efficiencies”, including adding more automation at its warehouses, “before passing prices on to consumers”. It said some prices had already been raised in the UK to offset increased logistics costs but it was shifting about 20% more production from Asia to north Africa and Turkey, to help cut costs and improve reliability as pandemic-related lockdowns in China continued to disrupt shipping, air freight and factory production for longer than previously anticipated. Boohoo’s new UK factory will double production to 40,000 items in the coming weeks. John Lyttle, the chief executive of Boohoo, said the company would conduct a “daily competitive review” of prices and that some items were likely to go down in price while others went up as the group aimed to maintain its competitive position against rivals. “We are seeing price increases across our competitor set and it feels like we are just at the beginning of this [inflation] from a consumer point of view,” he said. “We have been feeling the pressure for the last nine months as a business and it feels like it is just gaining momentum with consumers. We see change every month but it is difficult to predict.” Boohoo said sales growth was likely to drop to less than 5% for the year to February 2023 amid “uncertain consumer demand” and problems with transporting goods around the world. Sales are expected to fall until the end of May and then to recover somewhat. Shares in Boohoo dived more than 10% on Wednesday morning to 71.6p, as analysts said they expected Boohoo’s underlying profits for the year ahead to be about 18% below previous expectations. Boohoo said in a statement: “We remain extremely confident in the group’s future growth prospects, and as short-term demand uncertainty and material cost headwinds as a result of the pandemic unwind, the group’s belief that it continues to be capable of executing its strategy aimed at leading the fashion e-commerce market remains unchanged.” Julie Palmer, a partner at the analysts Begbies Traynor, said: “Boohoo has been hit by lower demand in key markets, long delivery times and higher return rates, and is also facing up to rising shipping costs, spiralling wage bills and more expensive materials. “The outlook isn’t pretty, with inflation a real concern for this outfit, and falling consumer confidence may mean customers thinking twice before refreshing their wardrobes as we head into summer. “Throw in the costs of a new factory in Leicester after allegations two years ago the company wasn’t paying workers the minimum wage, along with spending on new distribution centres as it prepares for hoped-for expansion, and Boohoo has a lot of ground to make up.”