Asos shares drop by a fifth after latest profit warning

Asos has issued another profit warning, sending its shares down by a fifth on Thursday, with the online fashion retailer blaming rising inflation for a growing rate of product returns.

The London-based group said it expected adjusted pre-tax profit to be between £20mn and £60mn, a substantial reduction from its previous guidance of £110mn to £140mn before adjusting for the impact of withdrawing from the Russian market.

Rival Boohoo also flagged higher rates of returns in a scheduled update. It did not adjust its forecasts but its shares also fell sharply.

Asos told analysts there had been a notable step-up in returns from March into April and that it was assuming this rate would persist for the rest of the financial year.

Chief operating officer Mat Dunn said the company believed its customers were now “feeling the impact of rising inflation”, pointing out that the increase had coincided with rises in energy bills and payroll taxes in the UK.

Returns eat into profits for online retailers because processing is largely manual and the returned items often have to be marked down when they are resold.

However, Dunn played down the prospect of charging for returns, as Spanish fashion rival Zara has recently started doing. “We still think free returns are a core part of our offer,” he told investors on a call. “There are lots of other things we could do [to reduce costs] if the behaviour persists”.

The latest alert follows a warning in October last year, which led to the departure of then-chief executive Nick Beighton. Dunn has run the company since then but had indicated that he did not want the top job.

Asos on Thursday said José Antonio Ramos Calamonte, who previously worked at Inditex and Carrefour and is currently chief commercial officer, would be promoted to the top job and that Dunn would return to the chief financial officer role he previously held.

Ramos told investors he was “totally committed” to the strategy of international expansion that Asos outlined following Beighton’s departure.

Jørgen Lindemann, appointed as a non-executive director last November, will succeed Ian Dyson as chair. Lindemann spent five years on the supervisory board of Zalando, the German fashion marketplace where Asos major shareholder Bestseller is also an investor.

Rival Boohoo, which also issued a trading update on Thursday, was less downbeat. It too flagged normalising return rates and said that although sales in the three months to the end of May were down 8 per cent on the same period a year earlier, they were still 75 per cent higher than pre-pandemic levels.

It did not alter its previous guidance for sales growth in the low single digits and underlying profit margins of 4 to 7 per cent, but Andrew Wade, an analyst at house broker Jefferies, said the company’s guidance of flat first-half revenue would now be “a stretch” and that he was cutting his full-year forecasts by about 9 per cent.

Boohoo’s shares were down 13 per cent at 55p in early trading on Thursday.


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