Retailer share prices are crashing. Here's what you need to know about the sell-off

Peter Spence
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Retail shares are crashing after an unexpected profit warning from Asos (Source: Getty)

An unexpected profit warning from online retailer Asos has investors very worried about the health of the sector generally.

Asos shares opened more than 40 per cent lower after it announced that it had been forced to slash its full-year profit margin guidance.

The key paragraph comes from CEO Nick Robertson:

The resultant higher mix of UK and European sales, with lower retail margins, together with increased levels of promotional activity, leads us to reduce our EBIT margin guidance to c.4.5% from c.6.5% for the current financial year.

And it has everyone watching retail a bit spooked. Asos has been a City favourite (Goldman Sachs upgraded them to a "buy" last month), and there's a chance that emperors could be robbed of their clothes.

Asos' peers in London are also falling as markets open. Shares in are nearly 11 per cent lower, Ocado is down close to five per cent, and AO World shares are also rattled, falling by nearly three per cent.

With existing players knocked so severely, you have to ask how this will affect investor appetite for several upcoming floats. But it's not just online retail that seems to have been knocked. Sports Direct and Next are also trading lower, although those losses have been capped below two per cent.

Asos' problems may in the end be specific to it, and not the sector at large. Analysts at Cantor Fitzgerald this morning expressed their concerns that Asos' womenswear ranges "have been expanded beyond the levels management can adequately control." So Asos may have its work cut out to now "reassess womenswear strategy and reduce the number of womenswear lines".