16th Sep 2014 11:03
LONDON (Alliance News) - ASOS PLC saw its shares plummet Tuesday, after the online fashion retailer revealed the fire at its Barnsley warehouse earlier this year wiped off up to GBP30 million of potential sales in the final quarter of its financial year, and said that profit growth will be stunted in 2015 due to heavy investments.
ASOS, the online retailer popular with 20-something consumers, said it expects to report a pretax profit of around GBP45 million for its most recent financial year ended August 31, and a similar profit next year too.
"In the new financial year we'll make significant investments in our international pricing and proposition, as well as in our logistical infrastructure and technology platform. As a result, we expect profit before tax for the year to 31 August 2015 to be at a similar level to 2013/14," Chief Executive Nick Robertson said in a statement.
ASOS shares have been hammered since the start of the second half of the year, hit by a profit warning, the warehouse fire, and a slowdown in overseas growth, which prompted the retailer to launch a series of promotions to boost flagging sales growth.
ASOS shares dropped 14% at the market open Tuesday. The stock is trading down 9.0% at 2,206.50 pence at midday.
Earlier this year, ASOS lowered its profit guidance for the financial year just ended and next year, due to heavy discounting and sterling strength, which it said took a big chunk out of its international business, especially in Australia.
Besides higher promotional activity, more sales sales growth from the UK and Europe rather than higher-margin international markets - such as Australia, Asia and Russia - also is a problem for the retailer.
Chief Executive Robertson said ASOS needs to invest in pricing to bring back international sales.
"The last few years we had been seeing internationally outperforming, but now that has swung around," Robertson told journalists Tuesday.
"What we are seeing is a shift from our international business back to our UK business, which is largely behind the margin drop, as the shift back to UK means we're not getting the VAT benefit we got from international", Robertson added.
Attracting consumers is not ASOS's problem, with the retailer reporting a total of 8.8 million active customers at August 31, up 25% year-on-year.
Instead, ASOS has been hit internationally by a strong British pound, which has pushed up the price of its goods in countries such as Australia and Russia.
ASOS said it is now in the process of making significant investments in expansion, pricing and infrastructure to help claw-back sales lost internationally, and to achieve its longer-term target of generating GBP2.5 billion in annual sales.
Robertson said investing in pricing and proposition internationally may include services such as free returns on orders in Australia.
"Fundamentally the story hasn't changed," Robertson said. "We are still investing in the future. We just have to invest in pricing to get back international sales."
ASOS said growth slowed in the final quarter of its financial year, with UK retail sales up on 33% in the three months to August 31, and international sales up only 6%. This compared with sales growth of 43% for the UK in the third quarter, and 17% growth in international sales. International retail sales accounted for 59% of total sales in the most recent quarter, down from 64% last year.
"Due to the fire at our Barnsley distribution centre, we lost sales during the quarter of between GBP25 million and GBP30 million with a retail gross margin impact of around 200 basis points. After adjusting for insurance proceeds, we expect profit before tax for the year to be in line with market expectations," said Robertson said in the company's statement.
ASOS said its retail gross margin is down around 640 basis points on the prior year.
As it heads into the busy Christmas trading period, ASOS said it expects its UK business to remain the star performer.
"The UK business will continue to outperform. What we want to do is get some of these price reductions into our international business and see how it goes there," Robertson said.
However, while ASOS is being forced to discount heavily in order to drive additional sales growth, its smaller fellow AIM-listed rival Boohoo.com PLC has been unveiling an impressive growth story, after last week saying its sales are surging, especially in the UK, with growth even accelerating in the second quarter.
At the end of last week, Boohoo said revenue growth accelerated in the second quarter of its financial year, boosted by new website launches, as the brand continues to expand its international presence.
In a trading update for the first-half, Boohoo said it continues to trade in line with expectations for the full-year, after revenue in the six months to the end of August increased to GBP67 million, up 31% on a reported basis on last year, and 36% at constant exchange rates, with the growth driven by strong UK sales. Boohoo shares are down 1.6% at 47.25p midday Tuesday.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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