Shares in fast fashion retailer Asos plummeted this morning as the online marketplace warned that profits will be lower than expected this year.
The company blamed this morning’s profit warning – its second in just over six months – on operational issues at new warehouse facilities in Europe and the US.
Operational issues plague retail star
The company said sales had been restricted due to problems at its new warehouses impacting product availability.
In a call with analysts and investors this morning Asos chief executive Nick Beighton said: “We know that there has not been the best execution of some of these things…but we will emerge leaner and fitter”.
On the whole analysts were confident that Asos could resolve the warehouse issues by Autumn, in time for its most important trading period in the run up to Christmas.
Hargreaves Lansdown senior analyst Laith Khalaf said Asos is a “Cinderella stock, struggling against the odds and still making it to the ball in the end.”
The retailer is aiming to resolve the stock issues by Autumn meaning it could just be “another operational blip in the Asos timeline”, he said.
Russ Mould, investment director at AJ Bell, said it “would be unwise to say that Asos has had its day”.
“A series of mis-steps and a warehouse fire in Barnsley took ASOS’ shares from more than £60 to £20 in the space of six months in 2014 and 2011 saw another slump, that time from £23 to £13,” he said.
“Yet sales and profits momentum were swiftly re-established and the share price roared back.”
Customer loyalty doesn’t exist
However, one challenge going forward will be re-attracting customers that faced issues with product availability and delivery due to the operational issues.
In the conference call with analysts this morning Beighton admitted that customer service in the US and Europe had not been good enough due to the lack of available stock.
Read more: Asos prepares job cuts as sales slump
He said the company has “made clear progress reactivating customer demand” in the affected regions.
Mould added: “The company will need to get a wiggle on if it is to keep both its customers and investors happy.
“Customers are not short of options when it comes to online retailers and investors will note that even if profits do treble by the year to August 2021 they will still be coming in below the levels reached in the 12-month period to August 2018.”
In the UK Asos is facing tough competition from other online retailers including Boohoo.com and Missguided.
No more easy wins for online retailers
Some analysts took a more cautious view, warning that, even if Asos is able to fix the warehouse issues by the Autumn, it is operating in an overcrowded market.
Brewin Dolphin retail analyst Nicla Di Palma said: “Confirming our fears, Asos this morning issued a profit warning.
“Once again, the company is blaming operational issues linked to its ‘transformational warehouse programme’ for its woes.
Read more: Asos profits tumble in first half of 2019
“The hope is that once these issues are resolved, Asos’s sales recover to the high levels of the past. But that remains to be seen, as we believe the easy win countries are now saturated.”
The market’s faith in Asos has been shaken by the profit warning, Ian Forrest, investment research analyst at The Share Centre said.
He added: “It is the second warning from the company within a year following last December’s announcement relating to lower than expected sales growth in the run up to Christmas.
“While the company says it expects the current issues to be resolved by the autumn it is difficult to know whether to place much faith in that forecast.”
Main image credit: Getty