LONDON — Shares in Asos tumbled 31.4 percent Thursday after the British online retailer warned its profit margin for the current financial year would be lower than expected.
The company’s shares on the London Stock Exchange ended the day at 31.02 pounds, or $51.93 at current exchange.
In an unscheduled third-quarter trading update, the company reported a 25 percent rise in retail sales to 242.9 million pounds, or $405.6 million, in the three months to May 31. But its international sales growth rate slowed to 17 percent at actual exchange rates, with revenues reaching 151.1 million pounds, or $252.3 million, affected by the strength of the British pound. At constant exchange rates, international sales would have grown 28 percent, the firm said.
Asos’ chief executive officer Nick Robertson said the “higher mix of U.K. and European sales, with lower retail margins, together with increased levels of promotional activity” meant that the firm is reducing its earnings before interest and taxes margin guidance for the current financial year to around 4.5 percent, from around 6.5 percent.
Robertson added: “Whilst our profit performance for this financial year is not what we had hoped for due to an unusual combination of factors, our accelerated investment in technology and infrastructure to support our 2.5 billion pounds [$4.2 billion] sales ambition is progressing and capex remains within guided levels.”
During a conference call Thursday, Nick Beighton, Asos’ chief financial officer, noted that during the quarter, a greater proportion of Asos’ sales saw a shift from the international market into the U.K., which he said is a “lower margin territory,” and to Germany, which has a higher rate of returns, Beighton said. He added that the local pricing function the firm had planned to launch in May, which was designed to counteract the effect of currency fluctuations, has been delayed.
Asos’ U.K. sales grew 43 percent during the quarter to 91.8 million pounds, or $153.3 million, while its retail gross margin for the period was down 370 basis points compared to the previous year. Asos’ group revenues rose 26 percent at actual exchange rates to 248.1 million pounds, or $414.3 million.
Pointing to the higher promotional activity, retail analyst Freddie George at Cantor Fitzgerald Europe Research said in a research note Thursday that he “[Remains] concerned that [Asos’] ranges in women’s wear have been expanded beyond levels management can adequately control. As with bricks-and-mortar retail brands having a poor fashion season, the company will now have to reassess women’s wear strategy and reduce the number of women’s wear lines, which is likely to impact results.”
Asos had already seen its share price dip 17 percent in March, when the retailer had forecast a reduction in EBIT margin for the year to 6.5 percent, as a result of increased costs related to warehousing, IT costs and Asos’ China start-up.