Adjusted net profit was $US228 million ($A325 million) for the second quarter, down 67 per cent from a year ago, and its margin was squeezed to just 2.1 per cent from 6.2 per cent last year as conflict in the Middle East pushed up jet fuel and freight costs for the retailer that sends cheap clothes by air to shoppers around the world.
Sales in Europe dropped sharply too in the quarter to end-June as Shein hiked prices and cut online advertising in anticipation of 3-euro ($A5) fees the European Union imposed on low-value e-commerce parcels starting July 1.
Shein reported $US11.08 billion in sales for the second quarter, with Europe revenue down 13.9 per cent to $US3.77 billion and US revenue falling 6.0 per cent to $US2.5 billion.
Overall sales were up 0.9 per cent from a year ago as growth in Latin America offset declines in Shein's biggest markets.
Since its September 1 debut in Hong Kong, Shein's shares have dropped 27.3 per cent from the offer price of $HK48.56 apiece, and the continued profit squeeze gave little to encourage investors.
"We estimate earnings landed more than 10 per cent below the low end of the range implied by the prospectus," Jefferies analysts wrote.
Shein's 18.1 per cent jump in fulfilment costs was well above Jefferies' expectations and was concerning, they said, given this was already before the EU fees kicked in.
In a statement, Shein chief executive and chair Yangtian Xu said a key priority was increasing the amount of inventory in Europe.
Shein has been investing in warehouse space in Poland, opening a logistics hub in Wroclaw with 740,000 square metres of warehouse space in December last year.
Industrial real estate firm CTP said it has this year leased an additional 66,000 square metres of warehouse space to Shein in Poland.
Xu also said Shein plans to push into higher-priced clothes that will boost its profitability, and hinted at the company's strategy of expanding its family of brands, including through acquisitions.
"As the product mix shifts towards brands at higher price points, the platform's overall average selling price will rise accordingly," he said in a statement.
"Our vision is to become a richly diversified brand collection that meets consumers' varied needs across multiple price points and occasions."
Shein was already forced to raise prices in the United States last year when the US administration ended de minimis - duty-free access for low-value ecommerce parcels - and this year faces the same challenge in the EU.
Shein has said the European fees could have a bigger effect than the end of de minimis in the US.
The 3-euro fees apply per product category, adding up to 15 euros if a shopper buys five different types of item in one order.
The EU is also planning an additional two-euro handling fee on low-value ecommerce parcels, to be implemented from November 1, adding to the pressure on Shein's business model.
