Market report

Asos and Boohoo suffer as high returns erode growth

Asos

Online fashion retailers are now suffering from the high level of customer returns, which has triggered a profit warning at Asos.

The company’s shares plunged by a third after it said profits could fall to between £20 million and £60m this year, significantly lower than analysts’ consensus of £92m and a big drop from its £190m last year.

In an update the firm referred to “uncertain consumer purchasing behaviour and the potential continuation of higher returns”. Sales growth has also been lowered for this year to 4-7% from its previous guidance of 10-15%.

Mat Dunn, chief operating officer, said: “What is now clear, based on the significant increase in returns rates that we have seen, is that this inflationary pressure is increasingly impacting our customers shopping behaviour.

“It is too early to tell for how long the current pattern of customer behaviour will continue but we are taking swift and decisive steps to minimise the impacts whilst continuing to deliver against the strategic initiatives we laid out in November that will ensure that ASOS builds for the long-term.”

Unlike some of its rivals which charge for returns, he insisted that “free returns are a core part of our offer.”

ASOS shares fell 32.46% (376.5p) to 783.5p, meaning the business has lost about 84% of its value in the past 12 months.

The company has promoted José Antonio Ramos Calamonte, chief commercial officer, to chief executive and appointed non-executive director Jørgen Lindemann as chair to succeed Ian Dyson.

Boohoo sales slide

Boohoo shares closed 11% lower after the retailer once again warned on inflation and high clothing return rates, though it left annual guidance unchanged.

It said UK sales slid fell 8% in the three months to the end of May but returned to net sales growth last month. International performance continued to be impacted by increased delivery times.

The group has continued to increase sourcing from markets closer to home to reduce exposure to elevated inbound freight costs, with a 10 percentage point increase in short-lead time product mix compared to the same period last year.

Outlook for the year ending 28 February 2023 remains unchanged. Revenue growth for FY23 is expected be low-single digits, with a return to growth in Q2 and growth rates improving in the second half of the year. Adjusted EBITDA margins are expected to be between 4% and 7%, in line with prior guidance.

Blue chips slump

London’s blue chips plunged more than 3% after the Bank of England raised interest rates and cut its growth forecast amid growing assumptions that the UK is now in recession.

The FTSE 100 fell 228.43 points (3.14%) to close at 7,044.98.

Wall Street stocks were firmly in the red in early trade, reversing gains that followed the Federal Reserve’s 75 basis points increase in US interest rates.

Ahead of London’s close the Dow Jones Industrial Average was down 2.38%, while the S&P 500 was 3.04% weaker at 3,674.71 and the Nasdaq Composite fell even further, down 3.65%.

In London, housebuilder Persimmon was the biggest faller, down 11.98%, while consumer stocks also fell. JD Sports was 7.6% weaker.

THG slumped 30.45p (29.04%) after one of its suitors walked away from bidding for the ecommerce retailer (full story here).

Scottish Mortgage Investment Trust was 8.74% lower.



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