Asos expects weaker profits as sales decline
- Asos expects to make underlying profits of between £40 and £60 million this financial year
- Fourth-quarter sales fell 15% as rain hit trading in July and August
- The company is also suffering from increased pressure on consumers’ living costs
Asos has warned that full-year profits are expected to come in at the lower end of expectations after weaker-than-expected summer sales.
The online fashion retailer, which has suffered from falling demand recently, expects underlying profits of £40 million to £60 million for the 53 weeks ending September 3.
It reported that like-for-like sales fell 11 percent on a steady-state basis during the period, following a sustained slowdown in orders across multiple markets.
Forecast: ASOS, which has suffered from declining demand recently, expects underlying profits of £40m to £60m for the 53 weeks ending September 3
Although warm weather in June led to strong sales, sales in the fourth quarter fell by 15 percent as rain damaged trade in July and August.
Asos has also been hit by increased cost-of-living pressures, higher customer revenues, supply chain issues and a widespread post-pandemic decline in the e-commerce sector.
Still, the company expects the last three months to be profitable thanks to £300m of recent cost savings and an improvement in core profitability as part of its ‘Driving Change’ turnaround programme.
Lower duties and freight costs helped the London-based company more than double its gross margins in the second half, although these fell below expectations due to significant discounting activity to reduce inventory levels.
Despite cutting inventory by 30 percent last year, the company expects price cuts to continue until the end of 2024 as it aims to eliminate stock from last year’s fall/winter season.
José Antonio Ramos Calamonte, CEO of Asos, said: ‘We remain focused on offering the best fashion and most attractive proposition to our customers as we progress on our journey towards sustainably profitable and cash-generating growth.’
Asos was demoted from the FTSE 250 Index in June after its market capitalization fell from more than £7 billion to less than £500 million over the past two years.
Sales on the website soared during the height of the pandemic, when the temporary closure of clothing stores due to lockdown restrictions delivered a major windfall for online retailers.
Growth then slowed as customers returned to high street shopping and cost-of-living issues hurt the young adult demographic.
The company has also faced stiffer competition from brands such as Marks & Spencer, Next and Chinese fast fashion giant Shein.
The pressure on Asos has made Asos a potential takeover target, with Turkish online retailer Trendyol putting forward a £1 billion approach last December.
Another potential suitor is Mike Ashley’s Frasers Group, owner of Sports Direct and Evans Cycles, which has built up a nearly 17 percent stake in the brand.
Russ Mould, investment director at AJ Bell, said: ‘The danger for Asos is that it is simply not as relevant anymore in a world where people can buy clothes in stores again and where the tide has turned on the whole fast fashion concept.
“And not repairing the roof when the sun was shining brightly on it during the pandemic really exposes the business.”
ASOS shares were 1.5 per cent, or 5.8p, lower at £3.81 on Tuesday morning.