Shares in Asos (ASC) plunged by as much as a fifth after the online retailer issued its second profit warning in a matter of months. The group revealed that European and US sales have been hampered by operational issues tied to its warehouse programmes in Berlin and Atlanta. “Embedding the change from the major overhaul of infrastructure and technology” in these facilities has taken longer than expected.
Stock availability in Berlin was weaker than planned because of the challenge of integrating new automation software into the group’s ‘Euro Hub’ facility. Stock build in Atlanta was also slower than anticipated. The upshot was that – for the four months to June 2019 – the EU saw retail sales growth of just 5 per cent to £269m, while US sales grew by 12 per cent to £121m. The UK and rest of world regions were more “robust” with growth of 16 per cent and 14 per cent to £334m and £170m respectively.
The group is “clear on the root causes” of the warehouse challenges it faces. But, it expects its (albeit “temporary”) stock availability issues to continue to dampen growth levels for the rest of the financial year to August. This, alongside the extra expenditure required to get its warehouses operating to plan, has led it to reduce guidance.
It now anticipates sales growth roughly in line with performance year-to-date (growth came in at 13 per cent over the ten months to June, reaching £2.2m). It also expects pre-tax profits of between £30m and £35m – far lower than the previous consensus estimate of around £55m. This comes after approximately £47m of warehouse transition costs – revised upwards from £35m – and around £3.5m in restructuring costs.
Capital-expenditure expectations have not changed, at around £200m, but the group reckons year-end net debt will sit at around £100m – up from earlier guidance of around £50m – due to its reduced earnings, capital-creditor expectations and its working capital profile. Adding a faint silver lining to this cloud, Asos has secured a new £350m revolving credit facility, which should provide some financial headroom.
