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Asos issues third profit warning in seven months as shares fall Asos issues new profit warning in seven months as shares fall
(about 4 hours later)
Shares in Asos tumbled on Thursday as the online fashion retailer issued its third profits warning in seven months, blaming problems with the rollout of its new automated warehouses. Asos suffered a fresh share price collapse after the online fashion retailer blamed IT chaos in its overseas warehouses for a second profits warning in seven months.
The group said sales were hit by the overhaul of warehouses in Berlin and Atlanta, which left the firm struggling to keep up with demand. It now expects to make profits of £30m to £35m this year, far below City forecasts of £55m. Analysts said investors were losing confidence in the former stock market star after a disastrous IT upgrade in Germany and stock problems in the US. The company has lost 60% of its value after a profit alert in December and another update in March when it first confessed to teething problems in America.
Shares in Asos – once a darling of the stock market – have already lost half their value this year after profit warnings in December and March. Nick Beighton, the Asos chief executive, said the company now expected to make profits of £30m to £35m this year, far below City forecasts of £55m and only a third of the £102m it reported in 2018.
Beighton said: “The major overhaul of our infrastructure has been bumpier and taken a lot longer than we originally anticipated. We acknowledge that this is a failure in execution.” He insisted the problems would be resolved by the end of September.
Burberry flies high thanks to bomber jackets and bumbagsBurberry flies high thanks to bomber jackets and bumbags
The latest warning sent the shares plunging by more than 20% initially but they later recovered to £23.87, still down by 13%. The profit warning sent the shares plunging by more than 20% initially but they later recovered to £22.79, still down by almost 17%. In March, the shares were changing hands for £77.30.
The shock warning in December, blamed on poor consumer spending, sent shivers through the retail world, suggesting the high street malaise was spreading to online retailers. Asos said overall sales were up 12% in the four months to 30 June. However, growth in the US and EU was lower than expected, at 12% and 5% respectively, due to the operational failures. Sales in the UK – which are handled by a warehouse in Barnsley, South Yorkshire, that was unaffected – were stronger, up 16%.
Asos said total sales rose 12% in the four months to 30 June. However, growth in the US and EU was lower than expected, at 12% and 5% respectively. Sales in the UK rose 16%. The problems were different in Germany and the US: its two-year old warehouse in Berlin was affected by the switch from processing orders manually to new automated systems while its new Atlanta site – which opened in February – had stock shortages as clothing brands struggled to get their products into the country fast enough.
Nick Beighton, the Asos chief executive, said: “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.” “These issues have restricted product choice and availability for our customers in the US and Europe which has a corresponding impact on sales growth in these regions as well as profitability in the form of higher transitional costs to fix the issue,” said Beighton.
He hopes to resolve the problems by the end of September. Liberum analyst Wayne Brown described it as “another significant profits warning” and said management had “serious questions” to answer: “The operational issues in Europe and the US signal to us a lack of enough senior leaders in the business with the adequate skill-set to undertake the complex capital projects.”
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said: “Asos can be a bit of a Cinderella stock, struggling against the odds and still making it to the ball in the end. Growing pains have been a consistent problem at Asos over some years and this quarter is no exception. Not having stock available is a massive faux pas for a retailer and the cost of resolving the problems will eat into profits. Brown said £700m had been invested its Asos’s warehouses over the last four years and although sales had doubled, profits were going backwards. “We question where £1.5bn of additional sales have gone considering profits are now £20m lower than in 2015.”
“If, as expected, Asos can resolve its stock issues by the autumn, then this could be just another operational blip in the Asos timeline. We don’t think Asos should be written off just yet.” Asos insists its current problems are self-inflicted and short-term and that the future remains bright for the retailer as fashion sales move online. “None of these (issues) change the opportunity ahead for us which remains huge,” said Beighton. “I’m clear this is not a demand issue.”
Independent retail analyst Nick Bubb said there was a “growing management credibility problem” at the company but suggested that investors would see how Beighton handled the key Black Friday online sales event before calling for his head.
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