Why have Asos shares tumbled today?

UK retailer Asos issued a profit warning on Monday. Saloni Sardana breaks down what may be behind the move.

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.

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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.

Saloni Sardana

Saloni is a web writer for MoneyWeek focusing on personal finance and global financial markets. Her work has appeared in FTAdviser (part of the Financial Times),  Business Insider and City A.M, among other publications. She holds a masters in international journalism from City, University of London.

Follow her on Twitter at @sardana_saloni