Asos SOS

The group’s history has been impressive; after listing at 20p a share in 2001, the group reached heights above 7,600p in March 2018. However, cracks emerged in July 2018 when management warned that sales would grow at the lower end of expectations. This was followed by a “significant deterioration” in trading reported in December. 

Management is carrying out a significant investment programme, aiming to upgrade its warehousing and technology capabilities, as well as building distribution hubs in the US and Europe to expand operations in those regions. Expansion in Europe and the US – its second and third largest geographies after the UK – is a natural move for the group, but the transition to new facilities has caused operational issues, prompting another profit warning and significantly lowered profit guidance this July. Recurring issues have inevitably dented confidence in management.

Brokers Peel Hunt and Berenberg have both downgraded their expectations in recent months over fears about execution risk. The group continues to generate healthy levels of return on capital, but the market is maturing and, if execution begins to slip, the group could struggle to maintain growth. Competition is getting stiffer. In recent years we have seen the emergence of rival online fast-fashion groups such as Boohoo (BOO) and Misguided, and the space is growing. N Brown (BWNG) recently took the decision to sell its store portfolio and shift to an online-only model. At its recent half-year results, Asos reported a 60 basis point decline in the retail gross margin due to “the high level of discounting and promotional activity across the market".

What’s more, the fast-fashion model Asos relies on has rapidly accelerated the life cycle of products – last year Asos introduced 300 new brands and launched around 5,000 new products each week. Consumers value choice, but the giddying scale of launches makes it difficult to pick winners and find the right stock levels to capitalise on popular products.