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Tuesday 21 January 2020

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ASOS shares slump after profit warning

Written by Hannah McGrath
17/12/18

Shares in ASOS plummeted by more than 40 per cent this morning after the company issued a profit warning following a slump in the crucial November trading period blamed on heavy discounting and Brexit concerns.

The surprise statement from the online retail giant sent shockwaves through the sector, driving down shares in other retailers including Next, Marks and Spencer and JD Sports.

The fall in share price at the open of trading meant ASOS’ market capitalisation had slumped from £3.5 billion to £2.2 billion.

In an unscheduled announcement, ASOS reported a “significant deterioration” in sales growth, due in part to a trend for discounting price competition in the run up to Christmas and weaker consumer confidence due to Brexit.

The company reported a 14 per cent rise in total retail sales for the three months to 30 November, including a 19 per cent increase in UK sales, however profit margins were hit, with sales growth significantly below earlier expectations.

As a result, ASOS said it was now forecasting sales growth of 15 per cent for the year to August, down from a predicted range of 20-25 per cent, with its anticipated earnings margin revised down from four to two per cent.

The statement read: “Although we delivered solid growth in sales of 14 per cent, we experienced a significant deterioration in the important trading month of November and conditions remain challenging. As a result, we have reduced our expectations for the current financial year.

It continued: “The current backdrop of economic uncertainty across many of our major markets together with a weakening in consumer confidence has led to the weakest growth in online clothing sales in recent years.”

The company also warned of challenging trading conditions in its largest European markets of Germany and France which account for 60 per cent of total sales to the EU.

In a conference call ASOS chief executive Nick Beighton cited “an unprecedented level of discounting” across the board, including a particular slowdown in the sales of men’s sneaker brands.

It had been thought that online retailers, led by the likes of ASOS, were benefiting from the shift of consumer shopping to online at the expense of traditional bricks-and-mortar retailers.

However, this morning's announcement suggests that e-commerce is increasingly vulnerable, as consumers rein in spending amid gathering uncertainty and push retailers to engage in aggressive discounting.

It comes after Mike Ashley, owner of Sports Direct, warned last week that the retail sector was being “smashed” after the worst November “in living memory”.

Shares in online fashion retailer Boohoo crashed 20 per cent at the open, but recovered sharply after it rushed out a statement to The City confirming that its trading performance “remains strong” after record Black Friday sales and that it continues to trade comfortably in line with market expectations.



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