Shares in UK retailer Asos fell by as much as 16% on Monday after it issued a profit warning and the company’s chief executive stepped down with immediate effect.
The online fashion retailer and popular Aim stock put out its full-year results to end-August this morning. Group sales rose by 20%, with a particularly strong showing for the UK (up 36%), as Asos benefitted from a higher demand during the lockdown period. Pre-tax profit rose by 25% to £177.1m.
However, this was nearly a third lower than analysts had expected, it warned that sales growth will likely slow to a mid-single percentage rate in its financial first half (which runs from September 1st) due to supply chain issues. Not only that but profit next year could fall by almost 40%, given forecasts for between £110m and £140m.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Meanwhile, the company’s chief executive Nick Beighton announced he is stepping down after six years in the role, with no candidate as yet ready to replace him. “A search for his successor will begin shortly,” Asos said in a statement. Until that happens, the company’s current chief financial officer, Mat Dunn, will also become COO and “lead the business on a day-to-day basis”.
The warning comes just days after rival Boohoo warned profits may take a hit due to a combination of higher freight and wage costs.
As with many other companies, Asos is not immune to supply chain issues that are causing problems for almost everyone right now. From a shortage of gas, to HGV drivers, to semiconductors and much more, supply chain issues are casting a cloud of uncertainty for many businesses.
On top of that, the end of lockdowns is bad news for the company. As Sophie Lund-Yates at Hargreaves Lansdown points out, during lockdown, customers shopped more and were also sending less stuff back – a “reluctance to leave the house meant return rates were lower,” boosting profit margins. But now that’s over – the “tailwinds are easing and the ASOS bubble has burst”.
Asos also said it expects higher inflation, mainly due to a surge in wages this year, to hurt profitability. Inflation is creeping up across several economies, with UK inflation hitting 3.2% in July, the highest since 1997.
“We will look to offset these cost pressures through continued cost efficiencies and scale leverage along with appropriate measures to mitigate inflation,” Asos said.
-
Dividend heroes: the investment trusts that have increased their dividends for 20+ yearsInvestment trusts can be a good option for income-focused investors – but which trusts have consistently increased their dividends over the past 20 years?
-
Six reasons not to top up your state pensionA deadline to buy National Insurance credits and top up your state pension is fast approaching. Here’s why it may not be worth it for some people
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
-
Buy-to-let returns fall 59% amid higher mortgage ratesBuy-to-let returns are slumping as the cost of borrowing spirals.
