Shares tumble as Asos issues profit warning

Asos has shared its second profit warning in a row, resulting in shares plummeting 20%.

The eCommerce retailer revealed total sales growth of 12% for the four months to June 30th, but warehouse issues resulting in lack of stock availability has led Asos to readjust full-year profit expectations to between £30-35 million.

The eCommerce player pointed to “operational challenges” from its warehouse transformation programmes in Berlin and Atlanta, saying the speed of building automation within these sites has not lived up to the retailer's “ambitious expectations”. This has led to limited product availability, which ultimately has impacted sales.

Nick Beighton, CEO at Asos, 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. 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. Where we have been unencumbered by these issues we have seen robust growth and overall our customer momentum is improving with the business hitting 20 million active customers globally for the first time.”

Beighton said the company is clear on the root causes of the problem and making progress on resolving them, with hopes to complete these projects by the end of September.

“Despite these short-term challenges, the move to a multi-site logistics infrastructure will enable us to offer customers across the world our market leading proposition, facilitate our future growth, as well as leading to longer-term efficiency benefits," he explained.

Sofie Willmott, lead analyst at GlobalData, noted that these operational changes are essential for the retailer’s international expansion.

“Delivering consistent double-digit top line growth in recent years has been supported by increased warehouse capacity and improved logistics processes, and the changes being made to US and EU distribution centres are vital to facilitate long-term growth in these key markets. Asos will need to focus on winning back disappointed shoppers by bolstering its marketing efforts. Though this may need to include discounts, by recovering customers quickly they will not be lost forever.”

She added: “Despite another profit warning from the previously untouchable online pureplay, the future remains bright for Asos. The retailer's agility and willingness to change to remain relevant to its customer base will help it to continue gaining market share both at home and abroad.''

Ant Payne, VP marketing at Brightpearl, agreed, saying retailers “can’t build a consumer-focused strategy on top of unstable foundations”.

“Asos have pinned their recent struggles on 'operational issues', and this is no surprise to us because it's the oft-ignored backbone of the entire retail operation. While most brands are aware of everything they need to do on the front-end, few seek to address the operational complexities that lie beyond the buy button.

“As a brand grows, its multichannel operation becomes ever-complex and difficult to manage, even for a brand with the resources of Asos. When you’re operating in different markets and you’re scaling quickly, you have got to have the right retail operations in place to respond effectively. Without those mechanics, for example, to handle inventory management, shipping and logistics or for more customer-facing support, the business is quickly going to run into problems like Asos has experienced.”