Asos shares shed 30 percent after profit warning

Friday, 06 June 2014
ANALYSIS_ Asos left the market in shock Thursday after it warned that its full-year profits would miss forecasts by 30 percent as it was forced to cut prices severely abroad to offset the strong pound. The announcement wiped 1.2 billion pounds off its market value. Asos now forecasts profit for the year to come in at 45 million pounds, far behind its former outlook of 65 million pounds dated back to March, which was as well downgrade from 69 million pounds.

Asos shares trembling after second profit warning since Narch

"Today's news will come as a shock to many and is also worse than we had feared," said in a note analysts at N+1 Singer. The broker has hence cut their full-year pretax profit forecast to 44.8 million pounds. Now, they also expect an important downgrade to 2014-15 estimates.

Market sources highlight that this is the second time the online fashion champion spooks investors in less than six months, what mostly explain why the stock lost as much as 31 percent right after the announcement.

In March, Asos announced its plans to spend on infrastructure to meet future demand, sending the stock to a rocky trade for the week. Something similar occurred Thursday, as short-term profit took a further beating on the share price.

As per data collated by Reuters, its shares have now more than halved from the all-time high of 7,195 pence reached in February to trade around 3,107 pence, giving it a market value of about 2.6 billion pounds.

"This highlights that just being online is not an automatic road to success. As with everything else in retail a business has to give shoppers a good reason to visit and buy," pointed out Conlumino retail consultant Maureen Hinton.

At this regard, Freddie George from Cantor Fitzgerald added that "We remain concerned that the ranges in womenswear have been expanded beyond the levels management can adequately control. Hence, we believe the company has seen significantly higher levels of markdown activity in womenswear and higher returns.”

Angela González Rodríguez

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