ASOS (ASC) profits squeezed causing shares to plummet

Overhaul of its warehouses isn’t going as smoothly as expected, affecting sales and profits.

Article updated: 18 July 2019 11:00am Author: Ian Forrest

  • Warehouse transformation in US and Europe taking longer than expected, impacting sales.
  • UK sales growth was ahead of company’s expectations despite strong competitive and promotional pressures.
  • Investors should remain very cautious as the struggling shares are likely to remain volatile.

Online fashion retailer ASOS gave a warning on its profits due to ongoing issues with its warehouses in Europe and the US, which are hampering sales. In a trading update covering the first four months of the second halfyear the company said that sales in the UK remained strong, with overall sales up 11%. However, the overhaul of its warehouses in Berlin and Atlanta is taking longer than expected and full-year profits are now forecast to be £30-35m, compared to the £56m expected by the market and £102m reported last year.

The shares dropped 20% in early trading before recovering a little, but clearly the market’s faith in the company has been shaken by the news. It is the second warning from the company within a year following last December’s announcement relating to lower than expected sales growth in the run up to Christmas. While the company says it expects the current issues to be resolved by the autumn it is difficult to know whether to place much faith in that forecast.

Investors should remain cautious

The shares have fallen 60% over the past year and are likely to remain volatile until a line has been drawn under the warehouse problems, so investors should remain very cautious.
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Ian Forrest

Investment Research Analyst

Ian’s background in investments, financial journalism and research has seen him advising private investors on equities and helping to manage portfolios. His qualifications include the Certificate in Financial Planning and the Chartered Institute for Securities & Investment’s Investment Advice Diploma.