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ASOS warns on profit as sales growth hampered by operational issues

Lauretta Roberts
18 July 2019

ASOS reported total; sales up 12% in the four months to 30 June but said its performance in the EU and US had been held back by "operational issues" related to the implementation of new warehousing in Berlin and Atlanta. As such it has revised down profits forecasts for the full year.

During the period total sales grew from £823.9m to £918.8m, a 12% growth on a reported basis. UK sales were up 16% at £334m. However growth in the EU was up just 5% at £269m and the US was up 12% at £121.4m. The rest of world was up 14% at £169.5m.

As a result the ASOS is revising its guidance for the year ahead forecasting sales growth in line with the year to date so far with profits before tax of £30m-£35m after c.£47m transition costs (previously c.£35m) and c.£3.5m restructuring costs. Capex guidance is unchanged at c.£200m.

ASOS

Nick Beighton

CEO Nick Beighton commented: "Whilst we are making good progress in improving customer engagement, our recent performance in the EU and US was held back by operational issues associated with our transformational warehouse programmes. Embedding the change from the major overhaul of infrastructure and technology in our US and European warehouses has taken longer than we had anticipated, impacting our stock availability, sales and cost base in these regions. Where we have been unencumbered by these issues we have seen robust growth and overall our customer momentum is improving with the business hitting 20m active customers globally for the first time.

"We are clear on the root causes of the operational challenges we have had, are making progress on resolving them, and now expect to complete these projects by the end of September. Despite these short-term challenges, the move to a multi-site logistics infrastructure will enable us to offer customers across the world our market leading proposition, facilitate our future growth, as well as leading to longer-term efficiency benefits."

The company said that the UK performance was "slightly ahead" of expectations despite the highly promotional nature of the market and said it was only "slightly affected" by the new Euro Hub warehouse in Berlin since the UK is mostly served from an established facility in Barnsley.

An improvement in the velocity of newness in its own label ASOS Design along with social media and the quality of engagement had helped drive a 16% increase in traffic to its site during the period, while new customer acquisition was was recovering and existing customer churn had slowed.

Russ Mould, investment director at AJ Bell, said: “Fashion fans have plenty of places from which to buy clothes and so Asos is at risk of losing out to the competition if it cannot fix its problems fast.

“We live in an impatient world where so many people want something in an instant. If Asos doesn’t have the stock ready to ship then consumers will simply go elsewhere.

“Operational issues are also bad for its reputation as consumers lose trust in a brand if they cannot get what they want, when they want.”

Retail analysts at Liberum said: “The operational issues in Europe and the US signal to us a lack of enough senior leaders in the business with the adequate skill-set in the business to undertake the complex capital projects ongoing.”

Independent retail analyst Nick Bubb pointed out that younger rival Boohoo is now worth more than Asos based on Thursday’s share price.

Read our in-depth data-led ASOS company profile and dedicated news archive in our master database of fashion The Intelligence.

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