Asos early warning of annual profit decline

Absrtact: The UK's largest fashion dealer Asos five days ahead of the scheduled date in Thursday to announce new performance data, showing a sustained slowdown in sales growth, while cutting full-year earnings forecasts, which plunged 44% to its share price, the biggest daily fall since the 2001 IPO

The UK's biggest fashion dealer, ASOS, unveiled new performance data five days ahead of the scheduled date in Thursday, showing a sustained slowdown in sales growth and a cut in full-year earnings forecasts, which plunged 44% per cent to its share price, the biggest single day decline since its 2001 debut, and the market capitalisation evaporated by 1.7 billion pounds.

Asos's three quarterly earnings report noted that intensive promotions, strong growth in lower-margin UK products and sterling strength would have reduced the annual EBIT pre-tax profit margin from 6.5% in the previous fiscal year to about 4.5% per cent. Nick Beighton, the group's chief financial officer, expects a full-year pre-tax profit of about 45 million pounds, the equivalent of a 17.7% reduction from 54.7 million pounds in fiscal year 2013, and a return to about 5-6% next year's EBIT tax.

It was the second major setback for the Asos in nearly three months, when the group posted a Better-than-expected performance on March 18, but is still planning to invest more and boost international markets at the expense of profitability, which has led to a 20% plunge in share prices. Asos's share price has doubled in the previous two years, but its higher than 100 times multiples also mean its share price is highly volatile.

In the three quarter ending May 31, ASOS UK retail revenues grew by 43% to 91.88 million pounds a year, a notable increase from 32% in the first half, but only 62% to 17% in the international market, which accounted for more than 151 million of the year, and far below the 35.2% increase in the first half. Overall retail income increased 25% to 243 million pounds, the group total income of 248 million pounds, up 26%.

Numis Nomura Nomura analyst in the study said Asos's performance was disappointing, but still believes that its customers are quality enough to support its global growth prospects. The ASOS's pre-tax profit for the year ended August 31 is expected to be lowered from GBP 64 million to £ 44 million. Cantor Fitzgeral lowered its ASOS target share price from 5,000 pence to 3,500 pence, maintaining a "hold" rating.

"While the earnings performance of this fiscal year will be less than expected due to multiple unusual factors, our capital expenditure is still under control," ASOS chief executive Nick Robertson said in a recent quarterly bulletin. "He then further analyzed the factors at the analyst meeting, pointing out that technology and infrastructure investments, and the initial cost of China's operations, were manageable, and CFO Nick Beighton revealed that some of the investment projects would be redeployed to reduce pricing, But the sterling strength of these uncontrollable conditions will have been a heavy blow to international market revenue, for example, the currencies of Australia and Russia, the two major overseas markets, have depreciated by more than 20% per cent against the pound, which has also left Australia, the group's largest international market, half a year ago now in third place, earning only 8% of the total retail sales. In addition, the group must increase sales in some countries, the highest range of more than 25%, and to offset the impact of price increases on consumer sentiment, the group increased the intensity of promotional activities, creating a vicious circle.

By the time of the deadline Asos 3,115 pence, although the decline narrowed to 31.13%, but has spread to the British and European fashion and luxury goods concept stocks follow its decline. Boohoo.com fell 14%,supergroup down 4.77%, while Italy's Yoox fell more than 5.5%. Asos has fallen to about 2.7 billion pounds.