RPT-UPDATE 2-ASOS profit warning wipes $2 bln off its market value

Thu Jun 5, 2014 5:53am EDT

* Full-year profit to be about 30 pct less than expected

* Strong pound has led it to cut prices in foreign markets

* Promotions have also eaten into margins

* Shares fall over 30 percent (Repeats to add link to Breakingviews column)

By Kate Holton

LONDON, June 5 (Reuters) - British online fashion retailer ASOS warned full-year profits would miss forecasts by 30 percent as the strong pound forced it to cut prices in foreign markets, wiping 1.2 billion pounds ($2 billion) off its market value.

The former darling of the retail sector first spooked investors in March when it announced plans to spend on infrastructure to meet future demand, at the expense of short-term profits, and the stock took a further hammering on Thursday when the group spelled out the full impact.

Shares in ASOS, whose fast-changing fashions are a global hit with internet-savvy 20-somethings, were down 31 percent in early trading as it lowered its operating margin guidance for its current fiscal year, which ends in August, and for the next.

Its shares have now more than halved from the all-time high of 7,195 pence reached in February to trade around 3,107p, giving it a market value of about 2.6 billion pounds.

"Today's news will come as a shock to many and is also worse than we had feared," N+1 Singer analysts said, cutting their full-year pretax profit forecast to 44.8 million pounds and adding they expected a big downgrade to 2014-15 estimates too.

ASOS, which stands for As Seen on Screen, was founded in 2000 by current chief executive Nick Robertson, and has grown rapidly as it met the demand for fast changing fashions.

It is now investing to increase its offerings around the world, with international sales making up around 60 percent of the group total.

However, this has coincided with the pound rising to a 5-1/2 year high against a trade-weighted basket of currencies, meaning customers in markets such as Australia and Russia are having to pay more for their goods. Despite price cuts in these markets, sales growth has still slowed.

While sales in Britain have grown strongly, ASOS tends to make a lower margin in its home market. The group said it also had to discount the price of some clothing, because the rate at which fashions change is moving so quickly.

"The significant strengthening of sterling has hit our sales hard in our growing international business," Robertson told reporters.

"Some of our customers have been facing price increases of circa 25 percent. We've promoted hard to try and offset the worst of this."

Retail sales in Britain in the three months to the end of May, its fiscal third quarter, were up 43 percent. International sales were up 17 percent, compared with the 35 percent growth it recorded in the first half of the year.

In an unexpected trading update, the group said it expected its operating margin for the current financial year to come in at around 4.5 percent versus a previous forecast of 6.5 percent.

That will result in this fiscal year's pretax profit figure coming in at around 45 million pounds, compared with the 64 million pounds analysts had been expecting. The group also said its margin for next year was likely to be lower than expected.

The profit warning was bad news for other online retailers. Shares in smaller fashion firm Boohoo fell 10 percent, while Ocado fell 2.9 percent and AO World, which on Thursday posted a 11 percent rise in profit, dipped 2.5 percent.

Shares in Kinnevik also dropped as the Swedish investment firm holds a major stake in online retailer Zalando, a competitor to ASOS.

ASOS has been the great success story of British retailing since it floated at just 20 pence in 2001.

($1 = 0.5969 British Pounds) (Editing by Sarah Young and Mark Potter)