The first-quarter loss included a substantial accounting charge, but falling US sales and weaker margins point to more persistent challenges for the fast-fashion retailer.
MARKET INSIDER — Shein swung to a $99 million net loss in the first quarter of 2026 from a $395 million profit a year earlier, as the removal of a US customs exemption weakened sales and a $328 million accounting charge weighed on the fast-fashion retailer’s results ahead of its planned Hong Kong initial public offering.
US revenue fell 14.3% to $2.04 billion, while Shein’s operating margin narrowed to 2.9%. The company also warned that a new European Union fee on low-value e-commerce shipments could create pressures similar to—or greater than—those already experienced in the United States.
Key highlights
- Shein reported a $99 million first-quarter loss, reversing a $395 million profit a year earlier. The result included a $328 million fair-value charge related to preferred shares.
- US revenue declined 14.3% after the removal of the “de minimis” exemption. Shein may increase US prices to offset higher duties on Chinese-origin products.
- Revenue growth slowed to 8% in 2025, while annual net profit fell 38.7%. The proposed Hong Kong IPO’s size, price and timetable remain undisclosed.
Accounting charge explains part—but not all—of the loss
A $328 million fair-value charge on convertible redeemable preferred shares was a major contributor to Shein’s quarterly loss. These securities, held by pre-IPO investors, can later convert into ordinary shares, and changes in their accounting value can create substantial non-cash gains or losses before a listing.
The charge means the headline loss does not fully reflect Shein’s underlying operating performance. However, the company’s core business also weakened during the quarter. Its operating margin declined to 2.9% from 3.9% a year earlier, indicating that costs were rising faster than the company could protect profitability.
For prospective IPO investors, the distinction is important. The preferred-share valuation charge may cease or change after the listing, but tariff expenses, weaker sales and pressure on margins could continue.
End of US tariff exemption hurts Shein’s largest market
Shein’s US business came under pressure after Washington ended the “de minimis” exemption for qualifying Chinese shipments in May 2025. The rule had allowed packages valued at less than $800 to enter the United States without ordinary customs duties.
The retailer said the policy change adversely affected sales, increased expenses and slowed its overall growth. Chinese-origin products sold directly by Shein or through its marketplace and shipped to US customers are now subject to tax rates ranging from 10% to 87.5%, according to its draft prospectus.
First-quarter US revenue fell to $2.04 billion from $2.38 billion a year earlier. The market accounted for 22.5% of quarterly revenue, down from 29.4% of the company’s total revenue in 2023.
Shein is considering price increases to offset part of the additional cost. That response, however, could weaken the price advantage that has helped the company attract consumers with products such as $5 dresses and $10 jeans.
Absorbing the tariffs would damage margins, while passing them on to consumers could reduce sales volumes. This trade-off has become one of the most important risks confronting Shein’s business model.
Europe emerges as the next tariff challenge
Europe contributed approximately one-third of Shein’s revenue in 2025, making it an increasingly important market as the company’s US exposure declined.
The European Union introduced a €3 fee on low-value e-commerce imports in July as part of its effort to address what it considers unfair competition from large volumes of inexpensive goods shipped from China.
Shein said it was too early to assess the full effect but warned that European trends could broadly match or exceed the deterioration observed in the United States after the de minimis exemption ended.
The company’s supply-chain structure increases its exposure to such measures. Products stored in central warehouses in China generated more than 90% of Shein’s net revenue in 2025 before being shipped to customers worldwide.
This model gives Shein flexibility to respond rapidly to changing consumer demand and limit unsold inventory. It also makes the retailer vulnerable to customs policies specifically targeting low-value parcels shipped directly from China.
Slower growth clouds Shein’s IPO valuation
Shein generated $41.85 billion in revenue during 2025, an increase of 8% from the previous year. Growth slowed sharply from 20.7% in 2024, while net income dropped 38.7% to $2.06 billion.
The combination of slower sales growth and declining profitability could make investors more cautious about the valuation Shein seeks in Hong Kong.
The company is targeting a valuation of between $40 billion and $50 billion, Reuters previously reported, citing a person familiar with the matter. That would be substantially below the approximately $100 billion valuation reportedly achieved in a 2022 private funding round.
Based only on 2025 earnings, a $40 billion valuation would equal approximately 19 times net income, while a $50 billion valuation would represent about 24 times earnings. These simplified multiples do not account for Shein’s cash, debt, IPO proceeds or the conversion of preferred shares.
Investors will ultimately need to decide whether Shein’s global scale and supply-chain technology justify those multiples at a time when trade policy is eroding the cost advantages that supported its expansion.
What is the status of Shein’s Hong Kong IPO?
China’s securities regulator approved Shein’s proposed Hong Kong listing on July 10, removing a significant regulatory obstacle after earlier attempts to list in New York and London failed to proceed.
The draft prospectus establishes the basis for investor roadshows and bookbuilding but does not disclose how many shares will be offered, the expected price, the amount Shein intends to raise or the listing timetable.
Goldman Sachs, Morgan Stanley and JPMorgan are serving as joint sponsors. Shein said the proceeds would support technology investment, brand development, international expansion, corporate-responsibility programs and general corporate purposes.
The filing identifies founder Sky Yangtian Xu as chairman and chief executive. Donald Tang, who previously served as executive chairman, was not included among the company’s directors or senior management.
Shein’s pre-IPO investors include IDG, HongShan, Tiger Global, Boyu, Brookfield and General Atlantic.
What investors should watch next
The central question facing Shein is whether it can preserve both low prices and acceptable profit margins as governments tighten rules governing direct-to-consumer imports.
The next disclosures should provide greater clarity on how much of the earnings decline reflects recurring tariff costs, whether US price increases are reducing demand and how the EU’s new parcel charge is affecting European sales.
The conversion terms of Shein’s preferred shares will also influence post-listing financial statements and the ownership structure. Equally important will be the final IPO valuation, the amount of fresh capital raised and management’s plan for reducing dependence on China-based fulfillment.
The $328 million accounting charge may prove temporary. Falling US revenue, weakening margins and growing regulatory costs are the more meaningful concerns for Shein’s long-term investment case.
