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Warning! Asos.com hit by “significant” sales downturn as France, Germany numbers cause concern

If asos.com issues a surprise sales and profits warning and talks of a “significant deterioration” in trading, you know things aren’t good. In fact, it’s experiencing its “weakest growth in online clothing sales in recent years” and slashed its outlook for the year accordingly. Its shares tumbled over 40% in early morning trade Monday.

Overall sales growth of 14% to ₤656m in Q1 might seem none-too-shabby for most, but this is asos.com. So the double-digit number was quickly followed by news it has “experienced a significant deterioration in the important trading month of November” to add to that warning.

Total Q1 retail sales increased 13% on a reported basis and 12% at constant currency to ₤640m, and total orders placed were 17.1m, up 16% on last year.

But two key metrics – average basket size and the average amount paid by customers per shop – both fell during the three months. And total gross margin dropped 160 basis points.

While sales also rose 19% in the UK, on the back of some very heavy discounting, it was a downturn in France and Germany, which account for 60% of its Europe ops, that were a major concern. Asos said those two-country sales were “significantly more challenging,” with sales growth of just 15%. EU sales overall grew 18% and US sales were up 13%, while rest of the world sales fell 3%.

As a result, asos.com reduced its expectations for the current financial year, now expecting sales growth of 15% for the year to next August. That’s significantly down from the 20-25% previously expected. Meanwhile, earnings margin has been revised down from 4% to 2%. Retail gross margin is now expected to be down 150 basis points, compared to previous estimates of flat at 49.9%.

Although September and October traded in line with expectations, asos.com said November was “a very material month for us from both a sales and cash margin perspective”. That follows unseasonably warm weather during the last three months which has also seen reduced spending by shoppers, asos.com said.

But it added: “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.”

The company also blamed increased discounting by rivals, which forced it to cut prices on more of its own products.

Asos.com chief executive Nick Beighton said: “We achieved 14% sales growth in a difficult market, but in 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.”

* Asos reaction? Boohoo Group also gave a surprise trading update Monday. And in contrast to its rival’s profit warning, the online fashion peer said its trading was comfortably in line with market expectations after record Black Friday sales. It said: “[We] are pleased to confirm that the group’s trading performance remains strong.” However, its shares were also caught in the panic sell and fell as much as 20%. The stock recovered slightly after its own statement but was still down 10% mid-morning.

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