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Published
Dec 17, 2018
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Asos profit warning as it sees “weakest growth in online clothing sales in years”

Published
Dec 17, 2018

When even the most buoyant fashion e-tailers issue unexpected guidance revisions, you know times are tough. That’s just what Asos did on Monday. Its revision saw it downgrading full-year sales to a rise of ‘only’ 15%, rather than the 20% to 25% it had expected, and profits will be hit.


Asos



OK, 15% growth is a figure that would be envied by many of its retail peers, but for Asos it’s a significant slowdown and really reflects the devastation we’re currently seeing in the UK (and European) fashion sector.

The London-based business said Q1 (the period to November 30) “delivered solid growth in sales of 14%.” But it “experienced a significant deterioration in the important trading month of November and conditions remain challenging,” leading to the guidance downgrade.

Retailer after retailer has said November trading was even weaker than October this year and while Asos “trading in September and October was broadly in line with expectations, November, a very material month for [it] from both a sales and cash margin perspective, was significantly behind expectations.”

And it didn’t hold back on saying just how bad it is out there at the moment. “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,” it said, adding that the weather has been “unseasonably warm”.

In figures, that meant Q1 saw UK retail sales rising 19% to £237.1m. It’s continuing to outperform the market, but its growth has been driven by price cuts.

Sales in the EU rose 18% to £203.8m (+14% currency-neutral), but its two largest markets, Germany and France that account for  around 60% of EU sales, “have become significantly more challenging, with the performance of these two countries at +15%.” But it has seen some “more encouraging performances” across a number of the other EU countries, particularly those in which it has recently launched more localised experiences, and the EU segment excluding France and Germany was up 24%.


Asos



US sales rose 13% to £85m (+11% currency-neutral), which was in line with expectations. But the rest-of-world business fell 3% to £114.1m, or -2% currency-neutral, which is bad news for profits as this region “has a higher gross margin and a lower returns rate than the group averages.”

PRICING PROBLEMS

Asos is obviously still seeing significant growth, but prices are an issue. With total order numbers up 16% to 17.1m, its 14% sales growth lagged order numbers and the company saw a 6% drop in average selling price (ASP). That meant a 160bps fall in the retail gross margin, and there was a 3% fall in average basket value (ABV), despite a 3% rise in average basket size (ABS).

Yet the company is still attracting shoppers from its rivals with active customers up 19%, order frequency up 5%, and the conversion rate up 20bps.

As mentioned, the firm now expects sales to rise just 15% for the year to August, with its EBIT margin at around 2% (rather than the 4% predicted). It’s also cutting capex spend to £200m.

CEO Nick Beighton added: "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."

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