ALMOST every other day, Asos customers are sent promo emails alerting them to the latest offer on the retailer’s vast fashion website: 25 per cent off dresses; save on festival fashion; free delivery on men’s hats.
Yesterday, the tables were turned. Investors hit the sell button on Asos shares, sending them into freefall to end the day at a 30 per cent discount to their 4,523p opening price.
The problem? A profit warning both unexpected and bad enough to send shareholders running for the exit. As chief executive Nick Robertson outlined deep price cuts in a struggling Australian market and a strong pound dragging on sales growth in Russia, investors started to realise something: Asos, the internet darling valued like a frothy tech stock, sells clothes.
On top of getting the back office logistics right in setting up a worldwide online marketplace, it also has to balance its product mix, get the pricing right and know its customers – all while keeping up with the latest trends.
But despite yesterday’s fall from grace, Asos still hasn’t come back down to earth with a bump – far from it.
In fact the drop in the share price yesterday almost exactly mimics the cut in margins that Robinson warned of; its market cap may have been cut by £1.2bn but the price to earnings ratio stayed pretty much the same.
And that’s okay. Asos grew fast and expanded aggressively; there had to be a point when it hit some headwinds.
None of which means it’s a bad company. Unlike Tesco and Morrisons – the predominantly bricks and mortar retailers who seem to be unsure of the best way to navigate the changing landscape – Asos seems to have a clear plan to stay on track, even if it is a slightly slower, less ambitious one.
It’s pressing on with what has been a hurdle ridden foray into China, and seems to be working on pricing controls that will help it react more effectively to the currency fluctuations that hit so hard yesterday.
All of which means that, with shares down more than 30 per cent since the start of the year, Asos is looking more affordable for the first time in ages.
Investors should take a leaf out of every fashionista’s book, and treat a drop in price as an opportunity to buy.