Growing pains: Asos share price plunges after fresh profit warning
Online fashion giant Asos suffered a double-digit drop in its share price this morning after warning that profits will be lower than expected this year, citing new troubles in its international warehouse facilities.
In its second profit warning in just over six months, the firm said today that it was reducing its forecasts as it expected “transition issues” to continue for the remainder of the financial year.
In morning trading the firm’s share price tumbled 13 per cent to 2,395p.
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Pre-tax profits for the full year are set to be between £30m and £35m, after the fast-fashion brand reported an unexpected £12m rise in transition costs and a £3.5m hit from restructuring costs.
European and US sales were held back as a result of operational issues associated with its warehouse programmes, the company said in today’s update to the London Stock Exchange.
Chief executive Nick Beighton said: “Whilst we are making good progress in improving customer engagement, our recent performance in the EU and US was held back by operational issues associated with our transformational warehouse programmes.
He added: “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.”
Asos said sales growth of five per cent in the EU reflected weaker stock availability than planned, blaming difficulties in embedding a new automation software in its Euro Hub.
While installation of the equipment was completed in line with the plan, the firm found challenges as it raised the volume of stock being processed through the systems.
Challenges with the interaction between its automation and warehouse software meant operational delays impacted availability, with an 11 per cent rise in order growth lagging behind a 19 per cent rise in visits growth of 19 per cent.
“While this is disappointing its hardly the end of the world, but such are investor expectations these sorts of earnings misses tend to get magnified in the short term,” according to Michael Hewson, chief market analyst at CMC Markets UK.
Hewson said: “As far as the actual numbers are concerned, in the UK retail sales showed a rise of 16 per cent, with total group revenues rising 13 per cent for the ten months to 30 June to £2.23bn, despite the logistical issues in the US and Europe, the company still see decent sales growth, even if Europe was disappointing with a modest five per cent increase.”
Sales growth was broadly in line with performance in the year to date, the firm added.
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In December the e-commerce group issued a shock profit warning, blaming poorer consumer confidence for a “significant deterioration” in pre-Christmas trading, pushing dow shares nearly 40 per cent.
Over the course of the last 12 months, the firm’s share price has plunged more than 54 per cent, falling from 6,086p to a close of 2,743p last night.
Founded in 2000, Asos has been at the forefront of the boom within the online retail industry, enjoying consecutive years of double-digit growth while many high street rivals suffered from a drop in shoppers.
However, in recent months the firm’s acceleration has been slowed by a weakening in consumer spending and a higher rate of price discounting.