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  1. ITV Report

Asos issues profit warning as Christmas sales falter

  • Video analysis by ITV News Business Editor Joel Hills

Online retailer Asos has warned over sales and profits after experiencing a “significant deterioration” in trading in the run-up to Christmas.

The group said in an unscheduled trading update for the first three months of the financial year that, while it delivered sales growth of 14%, it “experienced a significant deterioration in the important trading month of November and conditions remain challenging”.

As a result, Asos has reduced its expectations for the current financial year.

It now expects sales growth of 15% for the year to August 2019, down from 20% to 25%, and its anticipated earnings margin has been revised down from 4% to 2%.

Asos shares collapsed in morning trade, dropping 36% to 2,667p at the market open.

The warning will cause alarm among retailers as, up until now, it has been high street firms bearing the brunt of a brutal Christmas trading period.

Chief executive Nick Beighton said November had been the “most difficult month relative to expectations for five years” as he blamed Brexit, weak consumer confidence and political uncertainty for the shock warning.

But he added: “This is a bump in the road for Asos, it won’t stop us building the business.”

Asos pointed to a high level of discounting and promotional activity across the market, leading it to increase its own special offers, which typically eat into profit margins.

Unseasonably warm weather during the last three months has also seen reduced spending by shoppers, Asos added.

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However, in the UK, Asos said it continues to “materially outperform”, although this has been achieved at the cost of more promotional activity than initially planned and consumers buying into lower priced product.

Trading conditions across Germany and France, which account for 60% of the retailer’s EU sales, have become significantly more challenging,

Asos added in a stock market update: “Whilst trading in September and October was broadly in line with our expectations, November, a very material month for us from both a sales and cash margin perspective, was significantly behind expectations.

“The current backdrop of economic uncertainty across many of our major markets together with a weakening in consumer confidence has led to the weakest growth in online clothing sales in recent years. We have recalibrated our expectations for the current year accordingly.”

The warning prompted rival online retailer Boohoo to issue its own update, in which it said trading is “comfortably in line with market expectations” following record Black Friday sales.

Shares in other listed retailers such as Next, Ted Baker and Debenhams also took a knock.

George Salmon, equity analyst at Hargreaves Lansdown, said: “The uncertainty around Brexit will be playing a major role, and it’s probably no coincidence Asos’s key demographic of 20-somethings generally harbour more concerns over the future of the economy post-Brexit than their parents.”