LONDON: Online fashion group Asos fuelled a Christmas crisis in Britain’s retail industry with a profit warning highlighting a major downturn in trading last month, sending its shares 39 per cent lower and unnerving rivals.
The warning from Asos, whose shares fell close to a four-year low, showed that even previously high-flying online-only clothing retailers were not immune to a deterioration in consumer sentiment.
Stocks in other British clothing groups fell on fears of poor trading before Christmas when they do much of their business.
Marks & Spencer was down 2.8 per cent, Next slipped 3.4 per cent, Debenhams lost 6.5 per cent and Primark owner AB Foods shed 2.2 per cent.
Shares in direct rival Boohoo fell 11 per cent, even though it said it was trading in line with expectations, while Germany-listed Zalando was down 14 per cent.
Britain’s retailers had been hoping Christmas would revive spending after a torrid year for much of the sector that has seen a string of store groups go out of business or announce shop closures.
But with the sector battling subdued consumer spending, uncertainty over Britain’s exit from the European Union, rising labour costs and higher business property taxes, as well as unseasonably warm weather, analysts predict few winners over the festive season.
“There’s more than Brexit going on here, there is a weakening in consumer confidence and some of that has got good economic reasons behind it,” Asos Chief Executive Nick Beighton told reporters.
Asos, which targets 20-somethings, emphasised a high level of discounting and promotional activity across the market and also added that conditions in Germany and France had become more challenging.
STORM CLOUDS GATHER
Payments company Visa said on Monday British consumer spending fell by the most since July last month, while another survey said British households’ confidence in their finances hit a six-month low in December.
“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 in Britain.
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. Clothing chains Primark and Superdry have also warned of weak sales.
Asos cut its sales growth forecast for the 2018-19 year to 15 per cent from 20-25 per cent previously and its earnings before interest and tax (EBIT) margin target for the year to around 2 per cent from 4 per cent.
It also reduced its planned capital expenditure to £200 million (Dh924 million) from £230-250 million previously, delaying investment in automation at its US distribution centre by six months.
Analysts at Peel Hunt cut their pretax profit forecast for 2018-19 by 53 per cent to £56 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, adding that “conditions remain challenging”.
Asos said its sales rose 14 per cent to £656 million in the three months to November 30, but its retail gross margin fell 160 basis points as it cut prices and promoted to shift stock.
Sales had increased by 26 per cent in its 2017-18 year.
“We are taking all appropriate actions and our ambitions for Asos have not changed,” Beighton said, telling reporters “this is just a bump on the road.”