In reviewing its performance in the three months through Nov. 30, the leading British online retailer reported on Dec. 17 that it was lowering its expectations for its financial year after a significant deterioration in its sales during the important month of November, adding that conditions had remained challenging, against a backdrop of economic uncertainty and weakening consumer confidence.
The profit warning led to a big drop in the stock exchange quotation of Asos, which fell to a three-year low. It also pushed down those of Boohoo, Marks & Spencer and Next as well as the share price of Zalando, which went down to a four-year low of €20.99. Zalando, which we tend to follow more regularly, has been issuing its own profit warnings, and its stock market capitalization has declined by more than 40 percent in the last 12 months.
Asos is now projecting an overall growth of only 15 percent for the 12 months through August 2017, instead of a previous forecast of 20 to 25 percent. The retail gross margin should go down by 1.5 percentage points instead of remaining flat at 49.9 percent, and the operating margin (Ebit) will likely be limited to 2 percent, half the previously expected rate.
In the three months through November, Asos' total revenues went up by 14 percent to £656.0 million (€730.9m-$833.8m). In constant currencies, retail sales were up by 19 percent in the domestic U.K. market, but they grew at lower rates of 18 percent in the rest of the European Union and by 13 percent in the U.S. The retail gross margin fell by 1.6 percentage points due to higher discounts to clear merchandise in response to higher level of promotional activity across the market, Asos pointed out.
Asos said it continued to outperform the market in the U.K., but at the cost of more promotional activity than previously planned and with consumers buying lower-priced products. The company added that sales conditions have become more challenging also in its two most important foreign markets of Germany and France. They have been better in the rest of the EU, where they grew by 24 percent.
While Asos targets mainly young adults in their 20s, its profit warning has been supported only in part by recent statistics for the British economy. Total retail sales rose by 0.4 percent in the U.K. in November as compared to the previous three months and by 1.4 percent as compared to the previous month, according to the Office for National Statistics. Online sales grew faster, accounting for the first time for more than 20 percent of all retail sales, but overall, the British Retail Consortium concluded that households were continuing to shop cautiously after a relatively good summer season. Many were looking for bargains. Visa said that fashion stores were hard hit.
Despite Asos' profit warning, the general statistics for the month of November were a little better than expected in light of several factors, including uncertainties about the future of the U.K. after its planned departure from the European Union next March 29. Anyhow, the three-month period through November was only 0.4 percent better than the comparable period of a year ago.
Analysts felt that many consumers had deferred purchases from October and done Christmas shopping early to take advantage of Black Friday promotions. In fact, early indicators from the Confederation of the British Industry showed a sharp fall between Nov. 26 and Dec. 14.