Boohoo releases strong update despite retail shares tumbling across the board.
Retail fashion sector shaken as ASOS issues profit warning
- Shares across the sector were hit this morning with ASOS plunging 42% and Boohoo shares dwindling by 11%.
- ASOS issued a profit warning and it cut its expectations for the full year to 15% from 20-25%.
- We currently do not have a recommendation on ASOS but we do continue with our medium risk ‘buy’ recommendation for peer Boohoo.
Shares across the retail fashion sector were hit this morning after AIM-listed ASOS issued a profit warning. The company said it had seen a significant deterioration in trading during November, which includes the important Black Friday period, and trading conditions remained challenging.
ASOS cited a range of factors for the weakening in sales, including the uncertain economic backdrop, a fall in consumer confidence and unseasonably warm weather. It cut its expectations for full year sales growth from 20-25% to 15% and said its gross profit margin would drop by 150bps. The shares were hit hard by the news, dropping 42% in early trading.
It was notable that ASOS’ peer Boohoo also issued a brief trading update which provided quite a strong contrast and suggests that the issues are more specific to ASOS rather than widespread across the sector. Boohoo said its trading had remained strong in recent times with record sales in the Black Friday period and overall trading “comfortably in line with market expectations”. It will release more details on 15th January. The company's shares were down 11% in early trading but its strong growth record, helped by the general move by consumers to online shopping, and potential for further growth mean that we continue to recommend the shares as a ‘buy’ for medium to high risk investors. We do not currently have a recommendation on ASOS.
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