On-Line fashion retailer Asos has reported ‘significant deterioration’ in trading indicating that it is not just the High Street who is suffering from a slow down in consumer spending. Although sales grew by 15% this was below the expected number of around 25% and this sent the shaper price tumbling. The shares which traded well north of £75 early this year had been drifting down in anticipation of disappointing numbers however the announcement pushed them over a cliff. They fell below £25 at one stage yesterday before recovering to close at £26.14.
What should be more worrying for shareholders is that indication that profit margins were likely to fall to around 2% which is wafer thin and leaves very little room for error either in sales growth or rising costs. In the last published figures, turnover was around £2,417m and pre-tax profits about £160m. Thats 6.6% not too bad for a retailer however at 2% they would have to turn over £7.976M just to stand still profits wise. That is not happening.
The uncertainty around Brexit may be having some effect, however perhaps its a trend away from our current “wear it and chuck it” culture, after all, Asos’ key demographic of twenty-somethings are increasingly becoming focused on climate change and the things that they can do to help.
We do like ASOS and will continue to buy from them, however, maybe its time for them to stop competing on price and focus a bit more on quality and service.
