Asos has warned that profits could drop to £ 20m this year, down from over £ 190m last year as customers struggling with cash hit by rising inflation return more items at the online fashion retailer.
The warning, which was given in an unscheduled trading update, sparked a sharp sell-off in Asos shares, which reached a 12-year low. The stock price fell close to £ 8, compared to £ 59 in March 2021, when the company benefited from an increase in online shopping during the Covid-19 pandemic.
The retailer said it was seeing a “significant increase” in profitability in the UK and Europe, which would have a “disproportionate impact on profitability”.
Mat Dunn, chief operating officer, said there had been an underlying change in customer behavior between March and April and through May, when more customers returned Asos products. “It’s not a particular brand, it’s not a particular product, category or country in particular, but it’s a broad-based phenomenon. It correlates very highly with the pressures of the cost of living … it is difficult to conclude that it is anything other than the pressures of the cost of living. “
He described how customers, after buying something, could realize when they looked at their bank balance that they did not have as much money as they thought. “They bought it and then they thought, ‘I can’t afford it.'”
Asos does not charge for returns and currently has no plans to start doing so, despite the “non-substantial” costs of shipping, processing, cleaning and replenishing items returned to warehouses, Dunn said.
He said Asos customers in their 20s were especially affected by the cost of living crisis, as rents are rising in many countries, along with the cost of petrol and food. He warned that weak consumer spending could affect growth for the rest of the year.
As a result, the company has reduced its full-year profit forecast to between £ 20m and £ 60m, down from £ 194m a year earlier. Asos first warned of profits in October 2021, forecasting between £ 110 million and £ 140 million. In April, the company said the war in Ukraine could reduce profits by £ 14 million.
The warning comes after the collapse of rival online retailer Missguided, which called on administrators last month after receiving a request for liquidation from clothing suppliers to whom they owe millions of pounds.
Fast-fashion retailers enjoyed rapid growth during the pandemic when shoppers were forced to shop online and were saving the money they usually spend on travel, travel and restaurants. However, these same companies have struggled as physical stores reopened and inflation put pressure on consumer finances.
Another rival, Boohoo, said in a trade update on Thursday that while revenue fell 8% in the three months to May, the rate of returned items was normalizing and that net sales, reflecting the level of yields, had improved in the UK.
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Asos promoted its commercial director, José Antonio Ramos Calamonte, to CEO, and appointed Jørgen Lindemann as chairman. Calamonte is a retail expert who led the commercial strategy of brands such as Inditex, Esprit and Carrefour Spain and joined Asos in late 2020 from the Portuguese fashion firm Salsa Jeans, where he was CEO for almost two years. years.
Calamonte said Asos, along with other fashion retailers, will offer fewer promotions in the coming months as they adjust their stock levels. He put his weight behind Asos’ strategy and expressed confidence that the younger ones will continue to buy their clothes and accessories in the long run.