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Online fashion retailer Asos warned profits would be more than a third lower than expected this year due to a botched warehouse upgrade that limited the availability of stock to shoppers in the US and Europe.
The group’s share price dropped by nearly a quarter early on Thursday as it said pre-tax profit would be about £30m-£35m in 2019, compared with the more than £55m forecast by analysts.
The downgrade is the latest blow to Asos, which has now issued three profit warnings in seven months, including one just before Christmas that knocked 40 per cent off its value. The company’s share price has tumbled from a high of £76 in March 2018 to about £23, as its previously rapid growth has slowed.
The recent setback stems from problems at two warehouses, in Berlin and Atlanta.
In Atlanta, Asos suffered problems building up stock from other brands due to checks required by US authorities around the chemical composition of clothes and extra manufacturer documentation that its suppliers were not accustomed to.
The warehouse in Berlin was hit by problems with new automated software that struggled to cope with the volume of returns and other deliveries of stock.
Nick Beighton, chief executive, said the issues had affected Asos’s attempt to expand globally.
On a call with analysts, he said Asos had gone into these markets “with a degree of confidence” but that progress had been “a lot bumpier and taken a lot longer than we initially planned”.
Visits to the company’s European website increased 19 per cent but order growth trailed this at 11 per cent.
Sales in the UK and Ireland remained strong in the four months to the end of June, with Asos reporting 16 per cent growth in sales at constant currency to £334m.
“The UK performance is relatively robust but clearly the warehouse transition in both Europe and the US has seen significant growing pains in recent months, which in our view have been self-inflicted by the company,” analysts at Shore Capital said.
However, analysts at RBC remained bullish, saying Asos had “an impressive record in the UK, and if it can achieve even a third of its UK success in the US and Europe (in terms of customer penetration), we believe group sales can triple in 10 years”.
The retailer, which was founded in 2000, has benefited from the boom in online shopping as it has targeted the millennial market. But Asos has had to lower prices and increase investment in marketing in order to encourage increasingly cautious consumers to shop.
Retail sales data for June from the UK Office for National Statistics showed that while there was a pick-up on the high street, online retail growth slowed.
Mr Beighton said the operational issues were short term and that the group expected to resolve the warehouse problems by the end of September.
However, Asos warned that the lack of stock availability would continue to hit growth for the rest of the year.
The company planned to beef up its executive team to better direct its global strategy and streamline other parts of the business.
“We are taking the fat out of the business we thought was there,” Mr Beighton said, adding that the business would be “much fitter and leaner” once the changes had been made.
Total sales growth in the period was 12 per cent, while revenue rose 12 per cent year on year to £919.8m.
Asos flagged £47m in transition costs, £3.5m in restructuring costs and an increase in net debt to £100m from the £37.6m it reported in its most recent results in April.
Its share price was down 14 per cent to £23.55 by mid-morning on Tuesday.
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