ASOS – Cost Of Living Crisis Takes A Bite Into Profits
ASOS plc (LON:ASC)’s sales in the third quarter rose 4% to £983.45m, excluding Russian operations and the impact of exchange rates. Growth in the US and UK offset declines in the EU and Rest of World, but higher return rates, rising freight costs and discounting meant gross margins declined 3.10 percentage points to 44.0%.
A higher number of customer returns and market volatility, means full-year revenue growth is now expected to be 4-7% and pre-tax profit between £20m and £60m, down from previous guidance.
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The group also announced that Jose Antonio Ramos Calamonte, former Chief Commercial Officer, will take over as CEO.
Shares were down 16% following the announcement.
ASOS's Earnings
Laura Hoy, Equity Analyst at Hargreaves Lansdown:
“Expectations were relatively low for online retailer ASOS, and the group confirmed the market’s fears this morning with a profit warning for the full year. With return rates ballooning, the group’s expecting to lean on promotional activity in order to clear its warehouses. The news wasn’t a complete shock, management warned that this may be coming down the pipeline at the half year.
Discounting is a slippery slope—on one hand it’s important to clear inventory, particularly in fashion where the clothes may not be desirable next season. But it also chips away at brand power, something ASOS has been working hard to build up.
The question now is how long until shopping trends return to normal. Retail’s been arguably one of the last sectors to feel the pinch of inflation as consumers continue their post-covid wardrobe refresh. Plus with holidays and events finally on the agenda again, there’s still a need for occasion wear. But these demand drivers are getting flimsier. ASOS is one of the first retailers to warn on shifting customer behaviour, but it’s unlikely to be the last.”
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