Asos shares slump as it warns on profits

By BBC News,

Shares in Asos have sunk after the online fashion giant said that this year’s profits are likely to be much lower than expectations.

The retailer said sales growth in the US and Europe had been held back by problems at its warehouses.

These problems meant that the range of clothes available to shoppers in these markets had been limited.

As a result, it now expects to report profits of £30m-£35m this year, well below the £55m forecast by analysts.

Asos chief executive Nick Beighton said overhauling its US and European warehouses had taken longer than anticipated, affecting its “stock availability, sales and cost base in these regions”.

He added that the company was clear on what was causing the problems and was making progress on resolving them.

However, Asos said that while the warehouse problems were “short-term in nature”, it added it might take “some time” to regain customers who had been affected.

Total sales across the group rose by 12% in the four months to 30 June, Asos said, and in the UK – where trading “remained robust” – sales grew by 16%.

However, the “operational challenges” at its warehouses in Berlin and Atlanta had caused problems in the US and Europe, where sales were up 12% and 5% respectively.

‘Risk of losing out’
Asos has enjoyed rapid growth in recent years as it has benefited from the shift towards shopping online.

However, last December it surprised investors with a shock profit warning, and the company’s share price has now more than halved over the past year.

Shares in Asos opened down 20% on Thursday following the latest warning, before recovering some ground to stand 12% lower.

Analysts at Liberum said the latest warning suggested that serious questions needed answering.

“The operational issues in Europe and the US signal to us a lack of enough senior leaders in the business with the adequate skill-set in the business to undertake the complex capital projects ongoing,” they said.

Russ Mould, investment director at AJ Bell, said: “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.”

However, Sofie Willmott, an analyst at research firm GlobalData, was more upbeat, arguing that the “changes being made to US and EU distribution centres are vital to facilitate long-term growth in these key markets”.

She added that the future “remains bright for Asos”.

“The retailer’s agility and willingness to change to remain relevant to its customer base will help it to continue gaining market share, both at home and abroad.”