Online retailer ASOS issues profits warning as Christmas sales stagnate

Online retailer ASOS issues profits warning as Christmas sales stagnate

ASOS distribution centre near Barnsley, South Yorkshire. Image: Rui Vieira/PA Wire

Monday, December 17, 2018

Online retailer ASOS has warned over sales and profits after experiencing a "significant deterioration" in trading in the run-up to Christmas.

The group said in an unscheduled trading update for the first three months of the financial year that, while it delivered sales growth of 14%, it "experienced a significant deterioration in the important trading month of November and conditions remain challenging".

As a result, ASOS has reduced its expectations for the current financial year.

It now expects sales growth of 15% for the year to August 2019, down from 20% to 25%, and its anticipated earnings margin has been revised down from 4% to 2%.

ASOS shares collapsed in morning trade, dropping 36% to 2,667p at the market open.

The warning will cause alarm among retailers as, up until now, it has been high street firms bearing the brunt of a brutal Christmas trading period.

 

'Most difficult month for five years' 

Chief executive Nick Beighton said November had been the "most difficult month relative to expectations for five years" as he blamed Brexit, weak consumer confidence and political uncertainty for the shock warning.

But he added: "This is a bump in the road for ASOS, it won't stop us building the business."

ASOS pointed to a high level of discounting and promotional activity across the market, leading it to increase its own special offers, which typically eat into profit margins.

Unseasonably warm weather during the last three months has also seen reduced spending by shoppers, ASOS added.

Managing Director of Retail Remedy, Phil Durell described this year as a “double-whammy” for retailers.

“There is worry in the spending population. Disposable income is a bit lower than they want it to be. They are keeping their powder dry,” he said.

“This year has been a bit of a double-whammy for a number of fashion retailers. Coming out of winter last year and going into a cold spring. That was not helpful because they had the wrong product.

“Exactly the same has happened in November this year, when they have got in lots of jumpers and coats.”

However, in the UK, ASOS said it continues to "materially outperform", although this has been achieved at the cost of more promotional activity than initially planned and consumers buying into lower priced product.

Shares in other listed retailers such as Next, Ted Baker and Debenhams also took a knock.