Asos braces for weaker profits as sales slump
- Asos expects underlying profits of between £40m and £60m this financial year
- Its fourth-quarter revenue fell 15% as rains affected trade in July and August.
- The company has also been affected by elevated consumer cost-of-living pressures.
Asos has warned that full-year profits will be at the lower end of its forecasts after weaker than expected summer sales.
The online fashion retailer, which has struggled in recent times with falling demand, anticipates underlying profits of £40m to £60m for the 53 weeks ended September 3.
It reported that comparable turnover fell 11 percent steadily during the period following a continued slowdown in orders in multiple markets.
Forecast: ASOS, which has struggled of late with falling demand, anticipates underlying profits of £40m to £60m for the 53 weeks ending September 3.
Although warm weather fueled strong sales in June, fourth-quarter revenue declined 15 percent as rain hurt trade in July and August.
Asos has also been hit by elevated cost of living pressures, increased customer returns, supply chain issues and a widespread post-pandemic slump in the e-commerce sector.
Still, it expects the latest three-month period to be profitable thanks to £300m of recent cost savings and improved core profitability as part of its ‘Driving Change’ turnaround programme.
Lower duty and freight costs helped the London-based company more than double its second-half gross margins, although they were lower than expected due to significant discounting activity aimed at reducing inventory levels.
Despite cutting its stock by 30 percent last year, the company expects price cuts to remain in place until the end of 2024 as it aims to clear inventory from last year’s autumn/winter season.
José Antonio Ramos Calamonte, CEO of Asos, said: “We continue to focus on offering the best fashion and the most attractive proposition to our customers as we progress on our journey towards sustainable, profitable and cash-generating growth.”
Asos was demoted from the FTSE 250 index in June, having seen its market capitalization fall in the previous two years from more than £7bn to less than £500m.
Sales on its website soared during the height of the pandemic, when the temporary closure of clothing stores due to lockdown restrictions produced a huge windfall for online retailers.
Growth subsequently slowed as customers returned to buying their clothes on the high street, and cost of living issues have hurt its target audience of young adults.
The company has also faced tougher competition from the likes of Marks & Spencer, Next and Chinese fast fashion giant Shein.
Pressure on Asos has made it a potential takeover target, with Turkish online retailer Trendyol submitting a £1bn proposal last December.
Another potential bidder is Mike Ashley’s Frasers Group, owner of Sports Direct and Evans Cycles, which has built up a stake of around 17 per cent in the brand.
Russ Mould, investment director at AJ Bell, said: “The danger for Asos is that it is no longer as relevant in a world where people can buy clothes in stores again and where the tide has turned away from the concept of fast fashion. “.
“And by not fixing the roof while the sun was shining during the pandemic, the business is really exposed.”
ASOS Shares They were down 1.5 per cent, or 5.8p, to £3.81 on Tuesday morning.