ONLINE retailer Asos has warned over sales and profits after experiencing a “significant deterioration” in trading in the run-up to Christmas.
The warning will cause alarm among retailers as, up until now, it has been high street firms bearing the brunt of a brutal Christmas trading period.
This year has seen the likes of Coast, House of Fraser, Orla Kiely and Toys R Us all going under.
But now it seems the high street’s woes have spread to online retailers too.
Asos said in an unscheduled trading update that it “experienced a significant deterioration in the important trading month of November and conditions remain challenging”.
As a result, Asos now expects sales growth of 15 per cent for the year to August 2019, down from 20 per cent to 25 per cent, and its anticipated earnings margin has been revised down from 4 per cent to 2 cent.
It blames a high level of discounting and promotional activity across the market, leading it to increase its own special offers, which typically eat into profit margins.
The retailer adds that unseasonably warm weather during the last three months has also seen reduced spending by shoppers.
George Salmon, equity analyst at investment platform Hargreaves Lansdown said: “Recent data revealed a huge decline in UK retail footfall, which it would have been easy to assume was due to online players taking share at a faster rate.
“These numbers show it’s more complicated, and more worrying, than that. It looks like consumer confidence has been knocked to the extend people aren’t spending much anywhere, be it in physical stores or online.
“The fortunes of House of Fraser and Debenhams are testimony to how tough retail has been recently, and a profit warning at European rival Zalando proved online players aren’t immune to the issues that have plagued the sector.”
“It was notable that Asos’ peer Boohoo also issued a brief trading update which provided quite a strong contrast and suggests that the issues are more specific to Asos rather than widespread across the sector.
But Ian Forrest, investment research analyst at The Share Centre, points out that fellow online fashion retailer Boohoo, is trading strongly.
He said: “It was notable that Asos’ peer Boohoo also issued a brief trading update which provided quite a strong contrast and suggests that the issues are more specific to Asos rather than widespread across the sector.
“Boohoo said its trading had remained strong in recent times with record sales in the Black Friday period and overall trading “comfortably in line with market expectations”. It will release more details on 15th January.”
Asos shares collapsed this morning, dropping 36 per cent to 2,667p when the market opened.
But the online retailer says that in the UK it continues to “materially outperform”.
It’s trading conditions across Germany and France, which account for 60 per cent of the retailer’s EU sales, that have become significantly more challenging,
In a stock market update Asos said: “While 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.
“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.”
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