British online fashion retailer Asos saw its profits slump in the six months to 28 February in its first interim results since it issued a warning over tough trading conditions in December.
Asos’s profit before tax collapsed to just £4m for the six months to 28 February, a fall of 87 per cent from its £29.9m figure for the same period a year earlier, its interim results revealed today.
The online retailer saw revenue increase 14 per cent to £1.31bn over the six-month period.
Net debt slumped to a deficit of £37.9m at the end of the period, compared to net cash position of £37.7m the same period last year.
Asos said this was due to a “significant level of investment” that saw a capital expenditure cash outflow of £120.4m.
Basic earnings per share crashed 88 per cent to 3.6p from 29.4p in the first half of 2018.
Why it’s interesting
In December, Aim-listed Asos’s shares tumbled more after it issued a warning of a “significant deterioration” in pre-Christmas trading. This caused Asos to revise its sales growth forecast for the year to 15 per cent, down from 20 to 25 per cent.
Today Asos said it is not changing its guidance for the year.
UK sales grew 16 per cent to reach £482m in the first half of 2019, while international sales rose 12 per cent to £800m.
The company experienced severe problems in February following a surge in demand after its launch of a warehouse in Atlanta in America which was not staffed to cope. This hurt profitability in America, Asos said.
Today Asos called its first half performance “disappointing”. The company said it had “taken a critical look at all operating aspects of our business” in particular its in-house Asos Design brand which had a challenging half, with sales growing only five per cent.
Last week the brand said it was changing its returns policy to crack down on “serial returners”. Nick Beighton, chief executive of Asos, today said: “These guys are treating the Asos proposition sometimes, regrettably, as a rental service.” He said this was only a very small minority of customers, however.
Ed Monk of Fidelity Personal Investing said: “Hell hath no fury like an influencer scorned and Asos’s warning this week that it would crack down on serial clothes-returners incurred the wrath of social media fashionistas who need this freedom to fill their timelines, and led to brief share price stumble.”
“The episode signalled that ASOS may have moved beyond its initial rapid growth phase, and now must focus on less exciting jobs like controlling costs and fending off upstart rivals,” Monk said.
What Asos said
Chief executive Nick Beighton said: “We're certainly not satisfied with these results, Asos is capable of much, much, more. We got some things wrong during the half.”
“We are nearing the end of a major capex programme. Whilst this has inevitably involved significant disruption and transition costs, the global capability it now provides us gives us increased confidence in our ability to continue to capture market share whilst restoring profitability.”
Beighton said the company was working hard to keep up its appeal to customers in their 20s. “It's about website presentation, it's about styling, it's about models, it's about how the individual models are being styled, it's about feeding all that through with the social media presentation too," he said.
“We've managed a bigger than usual churn in our third party brands,” he said, highlighting that Asos have brought in “190 new, more edgier brands”.
Beighton said: “The influencers and Instagram are still a very very important and increasingly important engagement and inspiration channel.”
“The percentage of sales going through Instagram is still tiny, but that as a channel is still very important for engaging with 20-something customers. So we're stepping on the gas in those areas,” he said.