Asos shares crash 38% after shock profit warning
Asos has issued an unexpected profit warning after a poor November, becoming the latest retailer to be hit by weak consumer confidence, increased discounting and unusually mild weather.
The downturn suggests the high street malaise is spreading to online retailers, with consumers worried about what Brexit will mean for their finances.
Shares in Asos crashed 37.5% to £26.14 , the lowest since September 2015 – wiping more than £1.3bnoff the firm’s market value. The rival online fashion retailer Boohoo tumbled almost 20% but cut the loss to about 14% after rushing out a statement saying that trading remained strong.
Next and Marks & Spencer were also affected, with shares falling by 2.5% and 4% respectively.
Asos said big price cuts across the market had forced it to bolster its promotions to win customers after a dire November that the Sports Direct founder, Mike Ashley, last week described as “the worst on record, unbelievably bad”.
The Asos chief executive, Nick Beighton, said: “In fashion we are seeing an unprecedented level of discounting, certainly something I have not seen before, and that’s across the board.”
He said he had been “astonished the level of promotions and at discounting, especially around Black Friday”, predicting heavy discounting would continue in coming months.
Asos knocked 20% off everything on the Black Friday sales event, as it did in previous years, but its rivals offered bigger price cuts, Beighton noted. However, he denied that Asos had lost market share in the UK, saying overall consumer spending was down. Trading in France and Germany, which account for 60% of the company’s EU sales, was also poorer than expected.
Neil Wilson, the chief market analyst at Markets.com, said: “If Asos is finding it tough out there, then just about every retail stock has a problem. We knew the high street was struggling due to structural shifts but Asos slashing guidance suggests things are even worse in the run-up to Christmas than previously thought for the sector and the strife extends well beyond the high street.
“In short, online businesses have seemed immune but the warning from Asos today suggests they, too, are at risk from the cyclical slowdown.”
Russ Mould, the investment director at the stockbroker AJ Bell, said: “Consumers are feeling sufficiently nervous to put off purchases no matter how they make them. This will strike fear into other internet-based retailers and more traditional rivals who were banking on their web-based portals to get them out of trouble.”
Asos expects sales growth of 15% for the year to August 2019, instead of the 20-25% it had previously pencilled in. This prompted the firm to cut capital spending by £40m to £200m.
It is struggling to sell pricier clothing such as women’s coats and men’s branded trainers, priced at £55 to £150, with cash-strapped customers opting for cheaper items.
Beighton noted that the disposable incomes of Asos’s twentysomething customers were still below the levels they were at a decade ago. “It’s more than just the Brexit-related factors,” he said.
The retailer experienced a “significant deterioration in the important trading month of November”, it said, with only a small uptick in sales in December. It blamed economic uncertainty across many markets, including Germany and France, for the weakest growth in online clothing sales in recent years.
Mild weather in September and October also hurt retailers, which struggled to sell their autumn and winter ranges.
Asos reported £656m of sales for the three months to 30 November, up 14% on last year. Its average selling price dropped 6%; the average basket size rose 3% but the average basket value was down 3%. Beighton said: “Those are trends I have not seen for the best part of nine years.”
The retail analysis firm Springboard forecasts footfall on Britain’s high streets will fall by about 3% this week, the last full week before Christmas.