Asos tumbles after another profit warning

By Michele Maatouk

Date: Thursday 18 Jul 2019

Asos tumbles after another profit warning

(Sharecast News) - Asos shares tumbled on Thursday as the online fashion retailer warned on profits again, pointing to issues at its new warehouses in Europe and the US.
The company said annual pre-tax profit is now expected to come in between £30m and £35m, down from £102m last year and below analysts' expectations of around £55m, partly due to warehouse transition work costs of around £47m.

In a statement for the four months to the end of June, Asos said total group revenue grew 12% to £918.8m, with sales in the UK and rest of the world "robust", up 16% and 14%, respectively. However, sales in Europe and the US were held back by operational issues associated with its transformational warehouse programmes. Sales in Europe rose 5%, while sales in the US were 12% higher.

Chief executive officer Nick Beighton said: "Embedding the change from the major overhaul of infrastructure and technology in our US and European warehouses has taken longer than we had anticipated, impacting our stock availability, sales and cost base in these regions. Where we have been unencumbered by these issues we have seen robust growth and overall our customer momentum is improving with the business hitting 20m active customers globally for the first time.

"We are clear on the root causes of the operational challenges we have had, are making progress on resolving them, and now expect to complete these projects by the end of September. Despite these short-term challenges, the move to a multi-site logistics infrastructure will enable us to offer customers across the world our market leading proposition, facilitate our future growth, as well as leading to longer-term efficiency benefits."

Thursday's statement marked the third profit warning for Asos in seven months. Back in December, the retailer warned on profits following a "significant deterioration" in trading in November.

At 0915 BST, the shares were down 15% at 2,330.28p.

Russ Mould, investment director at AJ Bell, said: "Having a strong brand is not the only key factor to prosper in the world of online retail. You also need the ability to manage the day-to-day business including flawless execution of warehouse operations, having enough stock, and maintaining superior customer service.

"Fashion fans have plenty of places from which to buy clothes and so Asos is at risk of losing out to the competition if it cannot fix its problems fast. We live in an impatient world where so many people want something in an instant. If Asos doesn't have the stock ready to ship then consumers will simply go elsewhere.

"Operational issues are also bad for its reputation as consumers lose trust in a brand if they cannot get what they want, when they want."

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "Asos can be a bit of a Cinderella stock, struggling against the odds and still making it to the ball in the end. Growing pains have been a consistent problem at Asos over some years, and this quarter is no exception. Not having stock available is a massive faux pas for a retailer, and the cost of resolving the problems will eat into profits.

"Having said that both the US and EU businesses have managed to deliver sales growth despite the operational headwinds. If, as expected, ASOS can resolve its stock issues by the Autumn then this could be just another operational blip in the Asos timeline. We don't think Asos should be written off just yet."


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