Shares in Asos remained down by more than 38% this afternoon (17 December) as the UK-based online fashion retailer warned a slowdown in November has meant it will no longer meet its FY2018/19 revenue growth target of 20%-25%.
In its trading update for the first three months of the financial year, Asos said although it delivered “solid growth” in sales of 14%, it experienced a “significant deterioration in the important trading month of November and conditions remain challenging.”
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Total group revenue reached GBP656m, a 14% increase from GBP576.7m last year; while retail sales were up by 13% to total GBP640m.
Its international arm was the biggest contributor, with a sales rise of 11% to GBP402.9m, yet Asos noted trading conditions across its two largest markets of Germany and France, which account for about 60% of EU sales, have become “significantly more challenging”.
Meanwhile, in the UK, Asos continues to materially outperform in its home market with sales up 19% in the period to GBP237.1m, however this has been achieved at the cost of more promotional activity than initially planned and consumers buying into lower priced product.
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Retail gross margin was down by 160 basis points.
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By GlobalData“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,” said CEO Nick Beighton. “We are taking all appropriate actions and our ambitions for Asos have not changed”.
As a result, the company has reduced its expectations for the current financial year and now expects sales growth of about 15%, retail gross margin to be down by about 150 basis points, and EBIT margin to be about 2%, compared to the 4% forecast previously.
“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,” Asos saaid. “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.”
As a consequence of the current trading experience, Asos added the weighting of its H1:H2 profitability will shift from about 30%/70% as seen in prior years to an even more substantial weighting towards the second half of the current financial year.
Sofie Willmott, senior retail analyst at GlobalData, says the news from the “golden child of UK retail” rocked the stock market this morning. “The announcement highlights just how important peak trading is for retailers with tough performance in just one key month out of twelve, enough to significantly impact expectations for the whole year,” she says.
However, although Asos’s revised guidance has disappointed investors, Willmott says the retailer continues to steal share from its competitors delivering solid year-on-year growth despite being up against strong comparatives.
“For midmarket clothing players struggling to announce positive sales throughout 2018, a tough November will have dashed hopes of the Christmas period saving a challenging year. Boohoo rushed out a statement this morning to assure investors that it was trading “comfortably in line with market expectations”, but we suspect that other competitors are preparing to share much more negative sentiments.”
Asos intends to next update the market on trading on 15 February 2019.
