Online fashion group Asos’s profit warning spreads Christmas retail gloom in UK
London — Online fashion group Asos fuelled a Christmas crisis in Britain’s retail industry with a profit warning highlighting a major downturn in trading in November, sending its shares 39% lower and unnerving rivals.
The warning from Asos, the shares of which fell close to a four-year low, shows that even previously high-flying online-only clothing retailers are not immune to a deterioration in consumer sentiment.
Stocks in other British clothing groups fell on fears of poor trading before Christmas, which is when they do much of their business. Marks & Spencer was down 2.8%, Next slipped 3.4%, Debenhams lost 6.5% and Primark owner AB Foods shed 2.2%. Shares in direct rival Boohoo fell 11%, despite it saying it is trading in line with expectations, while Germany-listed Zalando was down 14%.
Britain’s retailers had been hoping Christmas would revive spending after a torrid year in which a string of store groups have gone out of business or announced shop closures. But with the sector battling subdued consumer spending, uncertainty over Britain’s exit from the EU, rising labour costs, higher business property taxes and unseasonably warm weather, analysts predict few winners over the festive season.
“There’s more than Brexit going on here. There is a weakening in consumer confidence and some of that has got good economic reasons behind it,” Asos CEO Nick Beighton said.
Asos, which targets 20-somethings, emphasised a high level of discounting and promotional activity across the market, adding that conditions in Germany and France have become more challenging.
Payments company Visa said on Monday that in November British consumer spending fell by the most since July, while another survey said British households’ confidence in their finances hit a six-month low in December.
“We knew the high street was struggling due to structural shifts, but Asos slashing guidance suggests things are even worse in the run-up to Christmas than previously thought for the sector and the strife extends well beyond the high street,” said Markets.com chief market analyst Neil Wilson.
The gloom in the run-up to Christmas has been building in Britain. Sportswear retailer Sports Direct said last week that November trading was “unbelievably bad”, while clothing group Bonmarche said it is faring much worse than during the financial crisis. Clothing chains Primark and Superdry have also warned of weak sales.
Asos cut its sales growth forecast for 2018/19 to 15% from 20%-25% previously and its earnings before interest and tax margin target for the year to about 2% from 4%. It also reduced its planned capital expenditure to £200m from £230m-£250m previously, delaying investment in automation at its US distribution centre by six months.
Analysts at Peel Hunt cut their pretax profit forecast for 2018/19 by 53% to £56m.
“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 said, adding that “conditions remain challenging”.
Asos said its sales rose 14% to £656m in the three months to November 30, but its retail gross margin fell 160 basis points as it cut prices and promoted to shift stock. Sales increased by 26% in its 2017/18 year.
“We are taking all appropriate actions and our ambitions for Asos have not changed,” Beighton said, adding “this is just a bump on the road”.