* 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 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
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
"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
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)