Asos set for another slump in sales as challenges continue
SUPPLY chain challenges and weak consumer sentiment are expected to contribute to a decline in sales at Asos.
Many UK fast fashion retailers have suffered over the last two years during a period of significant pressure on household budgets, as well as tough competition from global rivals such as Shein and Temu and online marketplaces.
Shares in Asos are around 50 per cent lower than the same period last year as a result. Tomorrow, the London-listed company is expected to post another significant slump in sales amid efforts to transform its fortunes.
Analysts at Shore Capital have predicted it will confirm a roughly 18 per cent decline in sales for the halfyear to March 3, with predictions of a 13 per cent fall to £3.08bn for the current financial year as a whole.
Last month, Asos blamed the projected sales drop on overhaul efforts, having cut its stock intake by about 30 per cent year-on-year to “right size” stock levels.
The business has been on a mission to reduce its stock and costs and improve its profitability.
Investors will be hopeful that the company can show signs its turnaround plan is starting to bear fruit with a positive profit outlook. Analysts have suggested the company is likely to see a slowdown in sales decline over the current half-year due to the turnaround plan.
However, Shore indicated Asos still faces pressure from “wider trading backdrop of balancing a challenging position of supply concerns, still cautious consumer confidence, poor seasonal weather in the UK and dynamic competition”.
The brokerage said the growth of marketplace platforms such as Depop and Vinted is also attracting typical Asos customers, while it is also coming under pressure from the rapid growth of recent rivals such as Shein and Temu.
Nevertheless, shareholders might take heart from recent positive trading updates from other UK fashion retailers such as Next, which highlighted robust consumer spending patterns.
Last month, Next revealed it would be reducing prices for shoppers as it brushed off Red Sea shipping disruption and notched up a better-than-expected annual profit haul.
The retail giant reported a 5 per cent rise in underlying pre-tax profits to £918m for the year to January.
This was better than the £905m it had recently guided for, thanks to better-than-forecast stock clearance in the January sales, and comes after it had already upgraded its earnings guidance five times over the past year.
Looking ahead to Asos’ results, Guy Lawson-Johns, an equity analyst at Hargreaves Lansdown, said: “Investors will be looking for signs that better times are coming and that a return to growth in the final quarter of this year is still on the cards.
“Active customer numbers will also be in the spotlight.”
He added: “Ultimately, markets are looking for signs that the increased marketing spend and stock rationalisation are being well received by its target audience of fashion-loving twenty-somethings.”