ASOS shares tumbled 27.1% to 844.6p in late morning trading on Thursday, after the fast fashion brand reported a lowered pre-tax profit guidance of £20 million to £60 million for FY 2022.
The company highlighted a UK sales climb of 4% to £983.4 million in Q3 2022, excluding Russian operations and the effect of exchange rates.
Sales in the UK experienced a boost on the back of higher demand for occasion wear driven by holidays, weddings and events, although purchases were slightly offset by an increase in return rates due to rising cost of living pressures.
“Expectations were relatively low for online retailer ASOS, and the group confirmed the market’s fears this morning with a profit warning for the full year,” said Hargreaves Lansdown equity analyst Laura Hoy.
“With return rates ballooning, the group’s expecting to lean on promotional activity in order to clear its warehouses. The news wasn’t a complete shock, management warned that this may be coming down the pipeline at the half year.”
ASOS confirmed a 21% growth in US sales to £141.9 million against £117.5 million, as a result of support from Topshop brands, targeted promotional activity and rising demand for occasion fashion.
Meanwhile, EU sales dipped 5% to £294 million compared to £310 million as return rates climbed above pre-pandemic levels, and sales in the rest of the world fell 20% to £115.7 million from £144.3 million except for Australia, which returned to growth as delivery propositions improved and Premier was reactivated.
ASOS highlighted a 69% increase in Topshop brands, with 350 new style drops per week and increased speed to market.
The firm reported continued progress on its Nordstrom partnership, with the launch of ASOS Design in 11 stores across the US and an expanded collection released on Nordstrom.com.
The group also mentioned the launch of a trial partnership with clothing resale business Thrift+, alongside the launch of its second circular design collection.
ASOS commented it expected sales between 4% to 7% as a result of increased market volatility and a higher returns rate, and a net debt in the range of £75 million to £125 million linked to lower profit and higher inventory levels.
“The question now is how long until shopping trends return to normal. Retail’s been arguably one of the last sectors to feel the pinch of inflation as consumers continue their post-covid wardrobe refresh,” said Hoy.
“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.”
“ASOS is one of the first retailers to warn on shifting customer behaviour, but it’s unlikely to be the last.”
