Online fast-fashion seller ASOS (ASC:AIM) was firmly out of favour with investors on Monday, the shares slumping 11% to £24.74 on a warning growth will slow in the current financial year as the retailer grapples with ‘demand volatility and global supply chain and cost pressures’.
ASOS also announced Nick Beighton would step down as chief executive after a mixed six years in the hot seat, as one of a number of board changes designed to deliver ASOS’ next phase of global growth.
Pulled-forward results for the year to 31 August 2021 revealed group revenues up 20% to over £3.9 billion and a 36% hike in adjusted pre-tax profits to £193.6 million, ahead of the £184 million called for by consensus.
ASOS also flagged rapid growth from its recently acquired Topshop, Topman, Miss Selfridge and HIIT brands and set out a bold ambition to become a £7 billion business within three to four years.
MATERIAL DOWNGRADE
However, the shares came under selling pressure as ASOS guided to sales growth of between 10% and 15% for the year to August 2022, below the 18% called for by consensus, and said it expects first half sales growth to slow to mid-single digits.
Focused on fashion-loving 20-somethings, ASOS is up against tough, lockdown-inflated first half comparables, while industry-wide supply chain pressures are expected to continue throughout the first half, ‘resulting in longer lead times and constrained supply from a number of our partner brands’.
Full year pre-tax profit is now expected to be in the £110 million-to-£140 million range, with the mid-point around 30% below consensus, as product return rates normalise and ASOS feels the pinch from rising freight, delivery and wage costs.
Mat Dunn, COO and CFO, commented: ‘Looking ahead, while our performance in the next 12 months is likely to be constrained by demand volatility and global supply chain and cost pressures, we are confident in our ability to capture the sizeable opportunities ahead.’
BEIGHTON BOWS OUT
This growth setback has resulted in the departure of Nick Beighton, who is stepping down after 12 years with the business and six in the top spot.
Dunn will lead the business on a day-to-day basis while ASOS looks for a new head, though Beighton will remain available to the board until the end of 2021 to ensure a smooth handover.
Beighton said he has ‘enjoyed every moment of my 12 years at ASOS. When I joined, there were fewer than 200 people and we had annual sales of around £220 million.
‘I leave a business reporting turnover of almost £4 billion, with more than 3,000 fantastic ASOS-ers delivering for 26 million customers in 200 markets around the world. I am particularly proud of the way in which we have led our industry in putting sustainability at the heart of everything we do with our Fashion with Integrity programme.’
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, explained Beighton took the top job at ASOS just as the fast fashion movement ‘was really going places, but that success also brought in more competition and the big players in the industry had to spend big on marketing to keep their brand front and centre for consumers.
‘Cost inflation is a problem affecting multiple industries, so not something that can be blamed on Nick Beighton. But he appears to have lost his position in the company due to a struggle to sustain momentum in the business.’
According to Mould, ASOS has found it hard to keep up with the fast fashion movement in recent years, ‘coming under criticism for not being able to turn around new product designs quickly, experiencing warehouse problems and poor stock availability.
‘The company ploughed on with expansion in places like the US. It secured the crown jewel from the Arcadia empire, buying Topshop earlier this year, but it has not had time to put the brand to proper use.
‘Customers have so much choice with where they buy clothes and competition continues to grow, with the likes of China’s Shein making a big mark on the UK. Players must either excel in one or more categories of price, product range and quality, and ASOS will need to do something extra to make it stand out from the crowd.’
