HONG KONG: Shein is planning to expand into higher-priced clothing after reporting a sharp decline in European sales and a narrower profit margin in the second quarter, as the fast-fashion retailer faces higher costs and new European Union fees on low-value parcels.

The company reported second-quarter sales of US$11.08 billion, up 0.9 percent from a year earlier as growth in Latin America offset declines in its largest markets. Revenue in Europe fell 13.9 percent to $3.77 billion, while U.S. sales declined six percent to $2.5 billion.

Shein raised prices and reduced online advertising ahead of the EU's introduction of fees on low-value e-commerce parcels on July 1. Europe accounts for around a third of the company's revenue.

CEO and Chair Sky Xu said Shein plans to move into higher-priced clothing to improve profitability. He also indicated that the company could expand its portfolio 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," Xu 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's net profit margin fell to 2.1 percent from 6.2 percent a year earlier, largely because higher oil prices and freight costs linked to the Middle East conflict pushed its fulfillment expenses up 18.1 percent.

The retailer, known for low-priced clothing and frequent discounts, raised prices in the United States last year after the Trump administration ended duty-free access for low-value e-commerce parcels.

It now faces a similar challenge in Europe. Since July 1, the EU has charged 3 euros per customs code on low-value parcels ordered online. A purchase containing five different types of items could therefore attract 15 euros in fees.

The full effect of those charges will become clearer in Shein's third-quarter results. The company has previously said the impact could exceed that of removing duty-free access for low-value parcels in the United States.

Shein's shares have fallen 27.3 percent from their HK$48.56 offer price since the company's September 1 stock market debut in Hong Kong.