Monday 23 June 2014 1:12 pm

Why Asos shares have shrugged off warehouse fire damage news

Despite slumping by around three per cent in early trading, Asos shares have seen a recovery after Friday's warehouse fire.

Traders have been waiting until today to respond to a fire at the company's Barnsley distribution centre, where around 70 per cent of the company's total stock is held.

South Yorkshire Police are treating the incident as deliberate, and have commenced a criminal enquiry.

It's not the first warehouse tragedy for the distressed retailer; in 2005 the company's Hemel Hempstead warehouse was damaged by explosions at the Buncefield fuel depot. Just weeks before Christmas, shares were suspended for around 10 days before resuming trading some three per cent lower.

This time around damage has been more mild. Initial estimates from Asos suggest that only around £22m of stock has been compromised, and the company was taking orders again by 2.00am this morning. There's been no damage to the automation or structure of the building in this case.

In a statement released this morning Asos said that it is fully insured against the loss of stock and sales. Robert Stevenson, general retail analyst at Peel Hunt, commends the company, saying that "disaster recovery worked well" and as a result there's been relatively minimal disruption.

If Asos will suffer in the short-term, it'll be as a result of insurance payout timing. In 2005 Asos received intermediate compensation, and Barclays suggest the same may happen again. As a result sales and profit guidance for Asos' current financial year may be at risk as a result of the disruption, but Barclays expects this to be recovered in the next period when a payout eventually comes.

If the incident poses any long-term risk at all, then it would be of a reputational nature. If Asos' customer service isn't sufficient to retain consumers affected by the downtime, and any resulting order problems. But the retailer looks to be handling the situation well on social media and didn't seem to suffer noticeably after its much longer outage in 2005.

Despite that, following two profit warnings this year, Cantor Fitzgerald has lowered its target price on the stock, from 3,500p to 2,500p while retaining its "hold" recommendation on Asos shares. Analyst Freddie George reiterated their view that the retailer could be set for a third as the autumn and winter seasons approach.

Following an early fall, Asos shares have moved above their previous close, to finish around 0.9 per cent higher. That's despite a general fall in European markets, and sees Asos returns beating the 0.4 per cent decline of the FTSE 100.

(Source: Google Finance)