Asos has warned it is expecting lower profit this year after an increase in customers returning clothes due to the pressures of higher living costs.
Asos lowered forecasts for the year, with sales anticipated to be in the range of four per cent and seven per cent, which it put down to “market volatility and an increased returns rate.”
Profit before tax was expected to be a range of between £20m and £60m, after the retailer revised its guidance.
Shares plunged more than 15 per cent in early trading on the London Stock Exchange on Thursday morning and later plunged further, down by 26 per cent.
Returns will place further pressure on warehousing and delivery costs while Asos said its revised forecast “considers both increased markdown and labour inefficiency to clear the returned stock.”
While gross sales had sped up with shoppers keen to buy occasion wear after the pandemic, net sales had been hit by a “significant increase” in returns rates in the UK and Europe towards the end of the three months to 31 May 2022.
Asos posted revenue growth of four per cent, compared to a previous growth rate of 47 per cent, reflecting the increased return rate, it said.
Its gross margin would also be battered as elevated returns were expected to drive higher levels of mark down and have a negative impact on the range of products available. Gross margin was forecast to be between 150bps and 200bps adverse.
Asos chief operating officer, Mat Dunn said it was now “clear” that “inflationary pressure is increasingly impacting our customers shopping behaviour,” based on returns rates.
He added: “It is too early to tell for how long the current pattern of customer behaviour will continue but we are taking swift and decisive steps to minimise the impacts whilst continuing to deliver against the strategic initiatives we laid out in November that will ensure that ASOS builds for the long-term.”
The fashion retailer also announced on Thursday morning that José Antonio Ramos Calamonte would be taking on the job of Asos chief executive officer.
With a CV boasting roles such as a former executive at Zara-owner Inditex and top boss at apparel firm Salsa Jeans, Calamonte will step into Nick Beighton’s shoes with immediate effect.
He was previously the company’s chief commercial officer.
Asos chair Ian Dyson, who is to step down after nine years at the company, said: “José is the right person to lead Asos through the next phase of growth and the Board is delighted that he is becoming CEO at such an important time.
“Since he joined the business, José has made an enormous contribution, driving change through our commercial function and bringing new energy and enthusiasm to the core product and trading functions of the business.”
Speaking to journalists, the brand’s chief financial officer Mat Dunn said he thought consumers were ordering clothes, looking at their bank balance and thinking ‘I don’t have as much money as I thought I have,’ before returning items.
The retailer’s core market, which Calamonte told journalists was fashion loving “20-somethings,” would be more exposed to cost of living pressures, owing to earning less on average than older cohorts, Asos bosses told reporters on Thursday.
“We don’t want to compete with the cheapest,” Calmonte told CityA.M. “We want to offer the best fashion for money,” he added.
While rival Zara had recently introduced a fee to return orders to third party drop-off points, new CEO Calmonte said not charging for returns was “a core part of our value proposition.”
“We’re not thinking about charging for returns, we’re not planning to do it,” he added.
“The question now is how long until shopping trends return to normal,” Laura Hoy, equity analyst at Hargreaves Lansdown said.
“Retail’s been arguably one of the last sectors to feel the pinch of inflation as consumers continue their post-Covid wardrobe refresh. Plus with holidays and events finally on the agenda again, there’s still a need for occasion wear. But these demand drivers are getting flimsier,” she added.