Asos issues profit warning after November sales deteriorate

In a surprise announcement this morning (17 December), online fashion house Asos issued a profit warning following a lower-than-expected November sales performance.

For the three months to 30 November, the first quarter of its financial year, Asos delivered sales growth of 14%, but said it experienced “a significant deterioration in the important trading month of November and conditions remain challenging”.

As a result, the business has reduced its expectations for the current financial year. Sales growth expectations have been reduced from 20-25% to circa 15%, while retail gross margin is now expected to be -150bps instead of flat at 49.9%.

EBIT margin is now mapped at circa 2% (previously 4%), and capital expenditure has been re-phased down to around £200 million. Asos said that this will mean the weighting of our profitability will shift from approximately 30%/70% – as has been the case in prior years – “to an even more substantial weighting towards the second half of the current financial year”.

Total orders placed in the first quarter stood at 17.1 million, which was still up 16% year on year, but like the rest of the market it has been selling at reduced prices. Average selling price in the three-month period was down by 6%, and average basket value was down by 3%.

Asos spoke at the Oracle Retail Forum in Barcelona, last year, to explain it was working on a markdown optimisation engine which was supposed to ensure the company sells and reduces price tags to the optimum level and at the most suitable time.

Asos said that its financial performance recalibration will also result in the automation of its recently operational US warehouse being re-phased by around six months. Although this is not anticipated to impact sales growth or distribution cost savings, it will, however, apparently delay previously anticipated warehouse cost benefits.

Asos also said that trading conditions across its two largest European Union (EU) markets of Germany and France, which account for around 60% of EU sales, have become significantly more challenging – the sales in these two countries are up by 15% year to date. The retailer’s Rest of World division is under-performing too, down by 3% year to date.

Nick Beighton, Asos CEO, commented: "We achieved 14% sales growth in a difficult market, but in the light of a significant downturn in November, we think it's prudent to recalibrate our expectations for the full year.

“We are taking all appropriate actions and our ambitions for Asos have not changed.”

The retailer said it intends to next update the market on trading on 15 February 2019.