retail

Asos profits plunge 70% after tumultuous year of IT chaos

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Profits at the online fashion retailer Asos plunged nearly 70% in a tumultuous year in which the former stock market darling grappled with IT chaos at its overseas warehouses and saw its shares plummet.

Sales rose 13% to £2.7bn in the year to 31 August, but pretax profits fell 68% to £33.1m. Major IT problems at its warehouses, which have hit sales and driven up costs, had forced Asos to issue two profit warnings in the past year. It did not provide a forecast for the current year.

The 19-year-old firm, which caters for fashion-hungry twentysomethings, hit a high point in November 2017 when it overtook the high street stalwart Marks & Spencer with a market value of £4.89bn.

For years, the online fashion trailblazer seemed unstoppable and its shares reached a peak of £77.30 in mid-March 2018. Since then, they have lost more than half their value, as Asos was dogged by the warehouse issues and admitted it was not immune from the consumer slowdown. It said it had been wrongfooted by the extent of discounting undertaken by rivals, especially during last year’s Black Friday shopping season when its “20% off” promotions failed to match competitors.

Meanwhile, its online rival Boohoo has flourished, with a near-40% surge in quarterly sales. Its brands include PrettyLittleThing, Nasty Gal and MissPap, and it recently bought the online businesses of Karen Millen and Coast out of administration.

Asos’s sales in the UK, up 15%, have been unaffected by the problems in Germany and the US. Its warehouse in Berlin struggled with a switch from processing orders manually to new automated systems, while its new Atlanta site, opened in February, failed to keep up with customer orders and ran out of stock. Sales in the EU rose 12% over the year while US sales grew 9%. More than 60% of the company’s revenues now comes from outside the UK.

Nick Beighton, the chief executive, said: “Clearly last year did not go as well as we planned. With hindsight we were over ambitious in tackling two international warehouses at the same time and our internal capabilities and bandwidth hadn’t kept pace with the changing scale of our business.”

Those problems have now been fixed, he said. “Whilst there remains lots of work to be done to get the business back on track, we are now in a more positive position to start the new financial year.”

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This boosted the share price by nearly 22% to £31.17 on Wednesday, its biggest one-day rise since January 2004.

He said Asos was “prepared for a better Black Friday” than last year. “It’s becoming a very key moment for customers. I don’t think there will be any waning in customers’ appetite for Black Friday.”

Sofie Willmott, lead retail analyst at analytics firm GlobalData, said Asos had its work cut out, but added: “Asos is clearly willing to adapt to survive, unlike some of its multichannel competitors that have been slow to respond to changes in consumer needs and shopping habits.”

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