Asos warns on profits after tough November trading

In an update for the first three months of its financial year, Asos said: “Although we delivered solid growth in sales of 14%, we experienced a significant deterioration in the important trading month of November and conditions remain challenging.”

Asos has cut full-year sales growth guidance from between 20% and 25% to 15%. It expects retail gross margin to be down about 150bps compared to flat previously, and an EBIT margin of about 2% rather than 4%.

The etailer, which has until now been a stellar performer, said: “Whilst trading in September and October was broadly in line with our expectations, November, a very material month for us from both a sales and cash margin perspective, was significantly behind expectations.

“The current backdrop of economic uncertainty across many of our major markets together with a weakening in consumer confidence has led to the weakest growth in online clothing sales in recent years. We have recalibrated our expectations for the current year accordingly.”

Discounting

Asos reported that it has had to increase promotions because of the extent of price-cutting in the market.

Asos said: “This increased discounting, coupled with the unseasonably warm weather during the last three months, has reduced our [average selling price] which has not been compensated by higher units per basket.

“Consequently, [average basket value] is now lower year on year. This has driven higher variable costs through both our distribution and warehouse cost lines. All other operating cost trends remain largely in line with expectations.

“We remain in a period of heavy transition costs which this year remain budgeted at a peak level of c£30m. This drag on our profitability will decrease during the second half of the current financial year.”

The etailer said profitability would now be much more substantially weighted towards the second half of the year.

Asos chief executive Nick Beighton said: “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”.

Asos’s warning prompted fashion etail counterpart Boohoo to issue a statement reassuring investors. Boohoo said its trading performance ”remains strong, with record Black Friday sales across the group ”and that it ”continues to trade comfortably in line with market expectations”.