Asos sales rise but US and Europe issues lead to profit warning
Good, but not brilliant, that was the Asos trading statement on Thursday. It detailed a sales increase that many retailers might envy, but also one that fell far short of what the group is used to. And it came with a scaling-back of its expectations too, so that was bad news for the firm’s share price.
The company said that the four months to June 30 saw total revenue growth of 12%, with the UK and rest-of-world (RoW) remaining “robust”. But in Europe and the US, sales were held back by “operational issues associated with our transformational warehouse programmes.”
Asos is “clear on the root causes” of this, but now expects the “transition issues to continue for the remainder of the financial year and we are reducing expectations accordingly.”
Digging deeper into the four-month figures, Asos said total retail sales rose 11% to £894 million and group revenue rose 12% to £919.8 million. That’s a little slower than for the first 10 months of the financial year with the retail sales increase in the longer period having been 12% and the revenue rise 13%.
In the four months, UK retail sales rose 16% to £334.1 million, with the 10-month increase also being 16%. And the RoW region accelerated in the latest period, rising 14% to £169.5 million after ‘only’ a 10% rise in the 10 months.
But EU retail sales rose just 5% in the four months to £269 million, which was much slower than the 11% 10-month increase, reflecting “weaker stock availability than planned [due to] the challenge of embedding new automation software in our Euro Hub” in Berlin.
And despite similar warehousing issues at its Atlanta hub, the US still rose 12% in the four months, which was better than the 10-month 10% rise. The US sales were helped by currency effects, but even here, the four-month retail sales rise was slightly higher than over the 10 months. This all suggests that once the logistics issues have been dealt with, growth could be very strong.
It all added up to a 9% increase in international retail sales for the shorter period to £559.9 million and a 10% rise in the year-to-date to £1.23 billion. But on a currency neutral basis, both periods saw an 8% rise.
As you can see, Asos is a company that’s far-from-flagging but also one that’s struggling to repeat the explosive growth it had become used to. And with rival like Boohoo still firing on all cylinders, the slowdown for the firm is even more noticeable.
Yet with the multi-brand store facing those warehousing challenges, with a backdrop in which consumers are being ultra-cautious, and May and June having been hugely difficult months for other fashion retailers, it’s hard to judge it too harshly.
The company said it’s seeing “positive momentum in customer engagement” with visits up 16% year-on-year, although the rise in the number of orders is slightly behind that at +14%.
So what about that revised guidance? Asos expects pre-tax profit to sit between £30 million and £35 million after £47 million of transition costs (revised up from £35 million) and £3.5 million of restructuring costs. The retail gross margin should be down around 250bps.
CEO Nick Beighton said that the firm is “making good progress in improving customer engagement,” but “embedding the change from the major overhaul of infrastructure and technology in our US and European warehouses has taken longer than we had anticipated, impacting our stock availability, sales and cost base in these regions. Where we have been unencumbered by these issues we have seen robust growth and overall, our customer momentum is improving with the business hitting 20m active customers globally for the first time.”
And despite these short-term challenges, he thinks “the move to a multi-site logistics infrastructure will enable us to offer customers across the world our market-leading proposition, facilitate our future growth, as well as leading to longer-term efficiency benefits.”
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