The Asos share price is down 69% since it reached an all-time high in March 2018, as a mixture of weaker consumer confidence and warehouse issues hammered the stock.
Asos outlook maintained despite profit plunge
In December 2018, Asos' share price slumped by more than 35% on the back of a downgrade in outlook, when the company reduced its sales growth forecast to 15% from 20%-25%.
Prior to the update, there was a belief that only the traditional retailers were under strain. However, when e-commerce firms are also feeling the pinch, it can rock investor confidence. Around the same time, Primark – one of the cheaper clothing brands – also cautioned about softer consumer appetite. This highlights the problems facing the fashion sector as a whole.
In April, Asos confirmed that first-half pre-tax profit plunged by 87%. In the six-month period, total sales increased by 14%, while the UK operation saw sales rise by 16%, and the international division posted a 12% jump in sales. As a result, the full-year outlook was maintained, which helped repair confidence in the stock.
Asos share price under pressure after profit warning
Just as the Asos share price was starting to stabilise, the company revealed another profit warning in July. The firm cited issues at warehouses in Germany as well as the US. There were IT problems at the German operation, as switching from manual order processing to an automated system caused chaos. Whereas in the US, inventory shortages led to shipments not being sent out fast enough. It's all well and good having an online business, as it cuts out the cost of the high street, but if the operation does not run smoothly, it can come back to haunt you.
Asos' reputation has taken such a battering, that any further glitches or profit warnings could clobber the share price again. On the other hand, the group should have learned from its mistakes, and if it can draw a line under the recent operational problems, the share price has the potential to pull back some lost ground.
Boohoo shows the way
With the festive season on the horizon, the outlook for the shopping season is in focus. The broader view is that consumer sentiment has taken a hit. According to the Confederation of British Industry, retail sales fell at their fastest pace since the credit crisis in August. That viewed was echoed by the British Retail Consortium, who announced that retailers had their worst September since records began. Last month though, Boohoo posted a 43% jump in first-half sales as well as a 53% increase in earnings. These stellar numbers shows that a well-run online fashion house can thrive in a downbeat climate.
Asos posts its full-year results on Wednesday.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
