• Asos says its financial and operating performance "has been disappointing this year."
  • The online pureplay has been hurt by automation issues at its US and EU warehouses.
Pre-tax profit tumbled 68% to GBP33.1m from GBP102m in the year-ago period

Pre-tax profit tumbled 68% to GBP33.1m from GBP102m in the year-ago period

Shares in Asos surged by more than 17% this morning (16 October) as the UK-based online fashion retailer reported a "disappointing" full-year performance marred by warehouse automation and restructuring issues.

For the 12 months to 31 August, pre-tax profit tumbled 68% to GBP33.1m from GBP102m the year before, while gross margin expanded 240 basis points to 51.2% from 48.8%.

Group sales, however, reached GBP2.7bn, a 13% increase from GBP2.4bn last year, while retail sales also increased by 13% to GBP2.7bn on a reported basis. 

Its domestic arm saw sales rise of 15% to GBP993.4m, while retail sales in the rest of the world (RoW) grew by 12% with particularly strong growth in Russia and the Middle East.

However, growth in the EU was lower than anticipated with a rise of 12% as operational challenges as a result of automation installation at its European warehouses impacted stock availability. US retail sales grew by 9%, with performance impacted by operational challenges in moving to the newly commissioned Atlanta warehouse in February. 

In its earnings statement, Asos says its financial and operating performance "has been disappointing this year."

"The huge investment we undertook in transitioning into a business with scale and operational capability in both the EU and US has been more challenging than we foresaw. The transformation has been huge and we underestimated the impacts of large scale operational change being executed on two continents simultaneously."

With the benefit of hindsight, Asos says it was "not adequately prepared" for the additional complexities of planning and trading across its expanded warehouse footprint.

"It is also clear that our internal capabilities had not kept pace with this growth and change in complexity, and accordingly we lost focus on several of our core competencies, notably product, presentation and customer engagement."

The comments come two months after the retailer requested a cut in prices from suppliers to help offset ongoing investments in the business to drive sales and growth, and follow a profit warning earlier this year.

Looking ahead, however, Asos remains optimistic.

"FY19 was a year of substantial operational change for Asos. Whilst this caused disruption to both our business and our customers, the majority of the transformation programme is behind us and has laid the right foundations to enable our future global growth."

CEO Nick Beighton adds: "This financial year was a pivotal period for Asos, where we have invested significantly and enhanced our global platform capability to drive our future growth. Regrettably, this was more disruptive than we originally anticipated.

"However, having identified the root causes of our operational issues, we have made substantial progress over the last few months in resolving them. Whilst there remains lots of work to be done to get the business back on track, we are now in a more positive position to start the new financial year.

"Our focus now shifts to ensuring that we enhance our capability to drive an improved customer experience and leverage the benefits from the investments we have made. With over 60% of our revenue coming from international customers and a strong global logistics platform with capacity to grow, we are well-positioned to take advantage of the global growth opportunity ahead of us."

Among its priorities for the year ahead are plans to further increase product choice, availability and newness, and improve its social media engagement.

In addition, Asos has restructured its executive team and plans to add new roles over the course of the next financial year, including a chief growth officer, chief commercial officer, chief people officer and a chief strategy officer to sit alongside its CEO, CFO, CIO and COO.

Sofie Willmott, lead retail analyst at GlobalData, notes Asos' plan to bolster its management team is a wise one considering it has a number of key areas of focus in FY2019/20.

Click on the following link to read more analyst comment: Has Asos taken on too much? What the analysts say