Profits at Asos have plunged by nearly 70% in a tumultuous year during which the former stock market darling’s shares plummeted and the online fashion retailer grappled with IT chaos at its overseas warehouses.
Sales rose by 13% to £2.7bn in the year to 31 August, but pretax profits fell by 68% to £33.1m. Major IT problems at Asos’s warehouses, which hurt sales and drove up costs, forced the retailer to issue two profit warnings in the past year. It did not provide a forecast for the current year.
The 19-year-old company, which caters for fashion-hungry twentysomethings, hit a high point in November 2017 when it overtook Marks & Spencer with a market value of £4.89bn.
For years, the online fashion trailblazer seemed unstoppable and its shares reached a peak of £77.30 in March 2018. Since then, they have lost more than half their value, as Asos was dogged by the warehouse issues and admitted it was not immune to the consumer slowdown.
The company said it had been wrongfooted by the extent of discounting undertaken by rivals, especially during the Black Friday shopping season last year, when its 20% off promotions failed to match competitors.
Meanwhile, its online rival Boohoo has flourished, with a near-40% surge in quarterly sales. Boohoo’s brands include PrettyLittleThing, Nasty Gal and MissPap, and it recently bought the online businesses of Karen Millen and Coast out of administration.
Asos’s sales in the UK, which rose by 15%, were unaffected by the problems in Germany and the US. The company’s warehouse in Berlin struggled with a switch from processing orders manually to automated systems, while its new Atlanta site, opened in February, failed to keep up with customer orders and ran out of stock.
Sales in the EU rose by 12% over the year while US sales grew by 9%. More than 60% of the company’s revenue comes from outside the UK.
Nick Beighton, the chief executive, said: “Clearly last year did not go as well as we planned. With hindsight, we were over ambitious in tackling two international warehouses at the same time and our internal capabilities and bandwidth hadn’t kept pace with the changing scale of our business.”
Those problems have now been fixed, he said. “Whilst there remains lots of work to be done to get the business back on track, we are now in a more positive position to start the new financial year,” Beighton said.
His remarks helped bring the share price up by nearly 22% to £31.17 on Wednesday, its biggest one-day rise since January 2004.
Beighton said Asos was prepared for a better Black Friday than last year. “It’s becoming a very key moment for customers. I don’t think there will be any waning in customers’ appetite for Black Friday,” he said.
Sofie Willmott, the lead retail analyst at GlobalData, said the company had its work cut out, but added: “Asos is clearly willing to adapt to survive, unlike some of its multichannel competitors that have been slow to respond to changes in consumer needs and shopping habits.”