Asos issues profit warning over fashion discounting

Online fashion retailer Asos has warned of lower profits this financial year after “unprecedented” discounting hit its trading in November.

Despite sales growth of 14% from September to November, it had seen “a significant deterioration” in November.

Economic uncertainty plus weaker consumer confidence had led to “the weakest growth in online clothing sales in recent years”.

“As a result, we have reduced our expectations,” the firm said.

Asos shares fell 35% in early trading.

Chief executive Nick Beighton said the fashion industry was currently experiencing an “unprecedented level of discounting, something I’ve not seen before”.

In a conference call with industry analysts, he said consumer confidence was “fragile”.

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Asos had previously forecast sales growth of 20-25% in the year to August 2019. However, it now expects just 15% growth.

Its anticipated earnings margin was also revised down, from 4% to 2%.

Bleak trading

“Whilst trading in September and October was broadly in line with our expectations, November, a very material month for us from both a sales and cash margin perspective, was significantly behind expectations,” Asos said.

“There has been a high level of discounting and promotional activity across the market. We have increased our own level of promotional activity, leading to a higher discount and continued high clearance mix.

“This increased discounting, coupled with the unseasonably warm weather during the last three months has reduced our ASP [average selling price], which has not been compensated by higher units per basket.”

Outside the UK, Asos said trading conditions in Germany and France, which account for about 60% of its EU sales, had become “significantly more challenging”.

Over the three months to 30 November, total group revenue was £656m, up from £576.7m in the same period last year.

Asos’s bleak assessment comes after Sports Direct boss Mike Ashley described trading in November as “the worst on record, unbelievably bad”.

“Retailers just cannot take that kind of November,” Mr Ashley told analysts last week. “It will literally smash them to pieces.”