5th Jun 2014 07:11
LONDON (Alliance News) - Online fashion retailer ASOS PLC Thursday lowered its profit guidance for the current financial year and next year, after saying it was hit by heavy discounting and sterling strength, which it said hit sales in its international business.
ASOS shares dropped 40% on the warning to 2,708.00 pence at the open. They are currently quoted at 2,933.82p.
ASOS reported good sales growth in the UK and Europe in the three months to May 31, with sales growth of 43% in the UK and 37% in Europe, but said that international sales and lower retail margins were hit by sterling strength and increased promotional activity. Total retail sales for the group rose 25% at actual exchange rates and 33% at constant currency to GBP243.0 million up from GBP193.6 million for the same period a year earlier.
"The resultant higher mix of UK and European sales, with lower retail margins, together with increased levels of promotional activity, leads us to reduce our EBIT [earnings before interest and taxes] margin guidance to around 4.5% from around 6.5% for the current financial year," said Chief Executive Nick Robertson.
Finance Director Nick Beighton told journalists Thursday that this means full-year profits will fall to around GBP45 million, compared to its previous profit guidance given in March of around GBP63 million to GBP65 million.
ASOS also lowered its profit expectations for the next financial year.
"The strength of sterling is the new norm. As a result we are working on re-deploying investment back into lowering prices. The market was expecting a EBIT level of around 7% next year, but we are softening that trajectory to around 5% to 6% next year," said Beighton.
ASOS said its gross margin in the third quarter declined by 370 basis points, due to higher promotional activity and the sales mix change from internationally into the UK and Europe.
"The stellar performance in the UK did not offset the decline we have seen internationally," said Beighton.
International sales, which represent around 60% of the group's overall sales, slowed to 17% growth in the third quarter to GBP151.1 million, while, within that, rest of world sales grew a mere 1%, hit by currency appreciation and market weakness in Russia, Asia and, in particular, Australia.
In the UK retail sales rose to GBP91.9 million from GBP64.3 million a year earlier, while EU retail sales increased to GBP64.7 million, compared with GBP47.2 million a year earlier.
Total retail sales for the group for the first nine months of the year rose 31% at actual exchange rates and 34% at constant currency to GBP715.3 million, up from GBP545.9 million the prior year.
"Whilst our profit performance for this financial year is not what we had hoped for due to an unusual combination of factors, our accelerated investment in technology and infrastructure to support our GBP2.5 billion sales ambition is progressing and capex remains within guided levels," said Robertson.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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