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Asos profit warning adds to picture of retail sales falling below Christmas trading expectations

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Asos today became the latest retailer to say that sales in November had fallen well short of expectations, adding to a picture that suggests retail is being hit hard over the crucial peak pre-Christmas trading period. 

The fast fashion pureplay retailer said that although its total retail sales grew by 13% in the three months to November 30, with sales up in markets including the UK (£237.1m, +19%), EU (£203.8m, +18%) and US (£85m, +13%), that had fallen “significantly behind” expectations. 

“The current backdrop of economic uncertainty across many of our major markets, together with a weakening in consumer confidence has led to the weakest growth in online clothing sales in recent years,” said Asos in its trading statement today. “We have recalibrated our expectations for the current year accordingly.”

The new forecasts see sales growing by 15% over the year to August 2019, where it previously elected sales to grow at between 20% and 25%. Asos said that it now expects earnings before interest and tax to grow by 2% (previously 4%), and is expecting to reduce its capital expenditure to £200m.

The Asos figures suggest that it’s winning more customers – with a 19% increase in active customers – but that it’s dropped its average selling price – by 6% – in order to win that business. Average basket sizes are up by 3%, with order frequency up by 5%, but average basket sizes are down by 3% at the same time. 

Asos says that increased discounting has come in response to “a high level of discounting and promotional activity across the market” at a time of “increasingly fragile” consumer confidence. It’s also come as Asos is investing in its own operations, automating its Eurohub2 distribution centre, and opening a centre in the US as it moves towards fulfilling US orders locally during the year. Asos said its spending was budgeted at £30m, creating a drag on profitability that is expected to decrease in the second half of the year. It will re-phase its US automation by six months but said that would mean a delay in seeing the cost benefits of the warehouse.

Chief executive Nick Beighton said: “We achieved 14% sales growth in a difficult market, but in the light of a significant downturn in November, we think it’s prudent to recalibrate our expectations for the full year. We are taking all appropriate actions and our ambitions for Asos have not changed.”

The update comes soon after Sports Direct International chief executive Mike Ashley said that sales had been “unbelievably bad” in November. But today’s Asos update suggests the slowdown is not only being felt on the high street but also online. 

Image: Fotolia

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