ASOS shares tumble as it downgrades profits due to higher returns and changing consumer behaviour
ASOS has revealed revenue growth of 4% to £983.4 million for the three months ending 31 May 2022, compared to a previous growth rate of 47%, as “return rates in UK and Europe increased significantly". The online fashion giant also downgraded its profits forecast for the year, sending shares tumbling by around a third today, taking their price to a 12-year low.
Today’s trading statement outlined that “shopping behaviours [had] changed in line with the impact of increased inflationary pressures on discretionary spend”.
Trading guidance for the year has been updated to reflect uncertain consumer purchasing behaviour and the potential continuation of higher returns, with revenue growth expected to be between 4% to 7% and adjusted profit before tax now expected to be in the range of £20 million to £60 million. Analysts had been expecting a profit forecast of around £80 million.
Mat Dunn, COO at ASOS, said: “At our half year results, we set out the actions we had taken as we faced into a more challenging backdrop, notably the work undertaken in the face of the global supply chain challenges which led to an improved stock profile and increased newness and availability. We saw the benefit of this come through in the shape of strong gross sales and a further acceleration of growth in the US. At the same time, we noted that the impact of inflationary pressures was yet to be felt by our customers.
“What is now clear, based on the significant increase in returns rates that we have seen, is that this inflationary pressure is increasingly impacting our customers shopping behaviour. It is too early to tell for how long the current pattern of customer behaviour will continue but we are taking swift and decisive steps to minimise the impacts whilst continuing to deliver against the strategic initiatives we laid out in November that will ensure that ASOS builds for the long-term.”
ASOS has also announced the appointment of José Antonio Ramos Calamonte, its former chief commercial officer, as its new CEO, and Jørgen Lindemann as Chair. Ramos Calamonte replaces Nick Beighton, who had been CEO since 2015 but who stood down last year, while Lindemann replaces outgoing chair Ian Dyson.
Shares in the online fashion giant slumped today by more than 32% on the back of the trading update closing at 783.5p.
Russ Mould, Investment director at AJ Bell responded to the news saying: "What a day for José Antonio Ramos Calamonte to be appointed Chief Executive. There will be no fanfare and celebration, instead he gets to deliver terrible news on the first day in the job. Given that it’s an internal promotion, he won’t be surprised by the state of the business having worked for ASOS since January 2021. Investors will be hoping for some fresh thinking in the boardroom, particularly as the share price has fallen by 80% in the past 12 months and now sits at a 12-year low."
Rival Boohoo revealed an 8% drop in quarterly sales today but it noted that comparison was against a lockdown period last year when online sales boomed. The business said it was impacted by inflationary pressures but maintained its full year forecast of EBITDA margins of between 4% and 7%.