LONDON — November has proven a brutal month for the big British retailers, with Asos the latest to sound the alarm. A sales and profit warning sent shares down 38 percent to 26.14 pounds at the close of trading on Monday. The shares clawed back some ground, after falling as much as 40 percent earlier in the day.
The investor worries spread to other e-commerce companies with the Berlin-based Zalando dropping 13.3 percent to 22.12 euros and the London-based Farfetch slipping 12 percent to $21.01 in what was a generally bad day for stocks.
Asos said that in the three months to Nov. 30, group revenue rose 14 percent to 656 million pounds, despite a “significant deterioration” in November. It added that conditions remain challenging, which has forced the company to lower expectations for the current financial year.
“November, a very material month for us from both a sales and cash margin perspective, was significantly behind expectations. The current backdrop of economic uncertainty across many of our major markets, together with a weakening in consumer confidence, has led to the weakest growth in online clothing sales in recent years. We have recalibrated our expectations for the current year accordingly,” the company said.
Asos also flagged “high levels of discounting and promotional activity” across the market and said it increased its own level of promotions, leading to a higher discount, and continued high clearance, mix. The company also blamed the unseasonably warm weather and lower average spend per basket. It said profitability will be weighted toward the second half of the year.
Asos reduced its sales growth projection to 15 percent from the previous 20 percent to 25 percent and its EBIT, or earnings before interest and tax, margin to 2 percent from 4 percent. It also slashed capital expenditure to 200 million pounds.
The company said that in the U.K., Asos continues to materially outperform its competitors, with sales growth of 19 percent. That growth was achieved at the cost of more promotional activity than the company had initially planned and with consumers buying into lower-priced product.
Consumer confidence is increasingly fragile, Asos added.
As reported last week, November was a washout for British retailers, with Black Friday delivering much disappointment to brick-and-mortar stores in particular — and December looking less than spectacular.
Springboard, which delivers insights on brick-and-mortar retail activity, said footfall fell in November by 3.2 percent, a significant decline on the previous year, when it grew by 0.2 percent.
The company said the November numbers illustrate the Black Friday effect of driving more shopping online during the period, which is also becoming longer.
“The 3.2 percent drop in footfall in November is indisputable evidence that Black Friday delivers no tangible benefit to brick-and-mortar stores,” said Diane Wehrle, Springboard marketing and insights director.
“While online shopping was inevitably more prevalent than in other months, the vast majority of spending remained in store and this is what Black Friday impacts adversely. Since 2013, when Black Friday became established as a key trading day, footfall has decreased in every year bar one and the only increase in 2017 was just 0.2 percent.”
Springboard is forecasting that footfall will decline by 4.2 percent in December, greater than the 3.5 percent drop in December last year and due to trading challenges for retailing.
“As we head into the zenith of the retail trading calendar, both retailers and consumers alike are in the midst of the greatest degree of uncertainty in recent times,” she said.
The Asos news came as British home furnishings retailer Laura Ashley plc said it plans to close around 40 stores in the U.K. — and expand in China. Andrew Khoo, the company’s chairman, told Britain’s Press Association Monday he expects to reduce the number of U.K. stores from 160 to 120, continuing a retail downsizing strategy that began in 2015.
“We’re moving to Asia in a much bigger way,” Khoo said. “We have a regional office in Singapore, it’s a dedicated office of about 10 people, and it’s focused purely on e-commerce into China. Once we get a significant foothold in digital retail in China we can look at the physical stores rollout.”
He said he had confidence in the U.K. overall, despite all of the uncertainty around Brexit. “We will continue to invest in the U.K. As long as Laura Ashley stays relevant there’s no reason we can’t get over this little speed bump.”