Fashion retailer Asos forecasts profit at ‘low’ of expectations

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Asos forecasts profit at the ‘low’ of expectations after the online fashion company was hit by poor trading in August

  • Asos cut its full-year outlook in June due to high customer return rates
  • He partly attributed last month’s poor sales to worsening inflationary pressures
  • The Jefferies brokerage lowered its rating on Asos shares to “hold” on Thursday

Online retailer Asos warned that full-year profits are expected to come in at the bottom of forecasts due to weak sales last month.

The fast-fashion seller blamed the worsening cost-of-living crisis and a weak start to the fall/winter shopping season for weaker-than-expected demand in August.

Trade in the previous two months had grown resiliently, but the group cut its full-year outlook in June due to rising inflation, which is accelerating customer return rates in the UK and Europe.

Problems: Asos blamed the worsening cost of living crisis and weak start to the autumn/winter shopping season on weaker-than-expected demand in August

It forecast between £20m and £60m in adjusted pre-tax profits, sales at constant currency would increase by 4-7%, while net debt would be between £75m and £125m.

Now Asos expects profit to be ‘around the bottom of the company’s guidance’, while revenue will only rise 2% and net debt will be around £150m .

“While ASOS remains cautious about the outlook for consumer spending, it continues to make strategic progress and manage the business in the current environment,” the company said.

Its latest forecast comes a day after brokerage firm Jefferies lowered its rating on the group’s shares from ‘buy’ to ‘hold’ and cut its price target by almost 70%, from £24.40 to £7.75.

Primark owner Associated British Foods also said yesterday that its profits next year would be negatively affected by soaring raw material, energy and labor costs and a strong dollar making imports more expensive.

Although ABF has raised prices to try to offset these soaring costs, it said price increases would be limited given the current inflationary pressures on Britons’ disposable incomes.

Despite these headwinds, he still expects Primark’s annual revenue to rise by 40% to £7.7bn due to the absence of Covid-related trade restrictions.

The closure of high street clothing stores for much of 2020 and early 2021 provided a major boon for online brands like Asos, which saw retail sales growth of 19% during each of the two last exercises.

But following the easing of trade restrictions, increased economic pressures and the waning popularity of fast fashion among young consumers, Asos has struggled to sustain this level of expansion.

In the nine months to the end of May, total turnover for the FTSE 250 group was just 1% higher than a year earlier. Boohoo also noted a massive slowdown in trading.

Both retailers became the target of short sellers last month after the Competition and Markets Authority launched an investigation into their pair, as well as the Asda George brand, following allegations of ‘green laundering’ .

Asos shares have fallen around 78% in the past 12 months. On Friday morning they were up 1.4% at £6.88.

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