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Britain's ASOS adds to retail gloom with profit warning

Key Points
  • The warning adds to the pre-Christmas gloom in Britain's retail sector. Last week Sports Direct <SPD.L> said November trading was "unbelievably bad".
  • ASOS lowered its sales growth forecast for the 2018-19 year to 15 percentfrom 20-25 percent previously and cut its earnings before interest and tax (EBIT) margin target for the year to around 2 percent from 4 percent.
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Online fashion group ASOS cut its annual sales growth and profit margin forecasts on Monday, becoming the latest British retailer to highlight a major downturn in November trading, sending its shares sharply lower.

The stock was down 36 percent at 0829 GMT, as ASOS's warning showed that even previously high-flying online-only clothing retailers were not immune to a growing crisis in the UK retail sector.

Shares in other British clothing groups fell on a read across to ASOS's update and fears of poor Christmas trading - Marks & Spencer was down 2.4 percent and Next was down 3.8 percent.

Shares in direct rival Boohoo were down 9 percent, even though it said it was trading in line with expectations.

"We knew the high street was struggling due to structural shifts, but ASOS slashing guidance suggests things are even worse in the run-up to Christmas than previously thought for the sector and the strife extends well beyond the high street," said Markets.com chief market analyst Neil Wilson.

The gloom in the run-up to Christmas has been building. Last week sportswear retailer Sports Direct said November trading was "unbelievably bad", while clothing group Bonmarche said it was faring much worse than during the financial crisis.

Completed customer orders sit in a trolley at Asos Plc's distribution warehouse in Barnsley, U.K.
Bloomberg | Getty Images

Clothing chains Primark and Superdry have also warned of weak sales.

ASOS lowered its sales growth forecast for the 2018-19 year to 15 percent from 20-25 percent previously and cut its earnings before interest and tax (EBIT) margin target for the year to around 2 percent from 4 percent.

It also reduced its planned capital expenditure to 200 million pounds ($252 million).

"Whilst trading in September and October was broadly in line with our expectations, November, a very material month for us from both a sales and cash margin perspective, was significantly behind expectations," ASOS said.

It said growth in online clothing sales was the weakest in recent years, reflecting economic uncertainty in its markets and a weakening in consumer confidence.

ASOS highlighted a high level of discounting and promotional activity across the market.

The group said sales rose 14 percent to 656 million pounds in the three months to Nov. 30. Sales increased by 26 percent in its 2017-18 year.

"We are taking all appropriate actions and our ambitions for ASOS have not changed," Chief Executive Nick Beighton said.