Asos: ‘weakest growth in recent years’
Major UK retailer Asos has issued a profit warning, after it saw a “significant deterioration” in sales growth. After the online fashion retailer has shared this unscheduled trading update, shares dived by almost 40 percent when the market opened.
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Asos says that one of the reasons for the alarming figures is the high level of discounting and promotion activity among competitors. This has led to increase its own special offers, which had come at a cost to profit margins. And the warm weather during the last three months has also led to shoppers spending less at Asos, the company explained.
‘We’ve reduced expectations for current year’
“Although we delivered solid growth in sales of 14 percent, we experienced a significant deterioration in the important trading month of November and conditions remain challenging”, the online fashion retailer stated in its trading update [pdf]. “As a result, we have reduced our expectations for the current financial year.”
The company continues: “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.”
Asos also explains that trading conditions in Germany and France, which account for 60 percent of Asos’ European sales, have become “significantly more challenging, with the performance of these two countries at +15 percent year to date.”
‘November will smash retailers to pieces’
Last week, Mike Ashley, CEO of Sports Direct, warned that big retail names faced being “smashed to pieces”, partly due to shoppers, worried by Brexit, not spending as much as they should do during the last two months of the year. “November was the worst on record, unbelievably bad”, he said. “No one could have budgeted for that. Retailers just cannot take that kind of November. It will literally smash them to pieces.”