Asos shares plunged 10% as the online retailer posted losses after shoppers cut back and returned more parcels
- Asos reported a £291m pre-tax loss for the six months to the end of February
- Revenue fell 8% to £1.8bn; Estimates of ‘low double digit’ decline in second half sales
- UK sales were down 10% on last year, while Europe was flat
Asos shares plunged 10 percent after the online retailer disclosed a large loss due to the cost of a major restructuring and weak sales.
The company has also faced a spurt in customers returning more parcels, while it has also seen shoppers return to physical stores.
However, Asos said this was a ‘short-term’ deal, believing it would return to profit in the second half, despite expecting sales to fall in the coming months.
Falling sales: Asos has been hit by customers sending back more parcels and said some shoppers were opting to return to physical stores amid the cost of living crisis
Asos reported a loss of £291 million for the six months to the end of February, compared with a loss of £15.8 million a year earlier.
Reported losses included a £128 million stock write-off, £49 million in asset impairment and costs related to redundancies at its head office.
Excluding these exceptional items, the adjusted pre-tax loss was lower at £87.4 million compared to a profit of £14.8 million a year earlier, as total sales fell 8 per cent to £1.8 billion.
UK sales were down 10 percent from last year, while Europe was flat, US sales fell 7 percent and rest of the world revenue fell 12 percent.
The fast-fashion retailer forecasts a ‘low double-digit’ fall in sales in the second half, but a core profit of between £40 million and £60 million as it presses ahead with its turnaround strategy.
Asos launched a major restructuring in October, closing some warehouses, shedding unprofitable brands and significantly cutting promotion and marketing spending, which should help it turn a £300 million profit in its current financial year.
The chief executive, José Antonio Ramos Calamonte, said the group had so far achieved £100 million in profit optimization and cost savings, suffering short-term sales as a result.
‘Our focus remains on improving our core profitability, prioritizing order economics over top-line growth and I am pleased with the strategic and rapid operational progress of the business in the first half of the financial year against some very challenging trading conditions. ‘ he told shareholders.
‘While some of these changes have impacted short-term sales growth, there are many reasons for optimism as we progress into the second half of the year.
‘I am very confident of our return to sustainable profit and cash generation in the second half of the year and beyond.’
Asos shares fell 10 per cent to 571.8p in morning trade on Wednesday. They have lost about 57 percent of their value over the past year.
Over a two-year period, shares have declined 87 percent and 90 percent in the last five.
Richard Hunter, head of markets at Interactive Investor, said: ‘There is no doubt that there is never an ideal moment within the rugged retail environment to undertake a change of this magnitude.
‘Still, change was necessary and there is a string in the group’s bow that may yet prove to be a savior’.
Charlie Huggins, manager of the Quality Shares portfolio at Wealth Club, said the turnaround plan was showing some ‘early signs of success’.
He added: ‘Assos remains confident of turning a profit in the second half, despite challenging trading conditions, while cash generation at least appears to be on an improved trajectory. But this is coming at the cost of short term sales.
‘The problem Asos faces is that cost-cutting can only go so far. In the long run, Asos will need to get its sales going in the right direction. And to do that it needs to find a way to deliver great service to its customers at the right margins. That fight has hardly even begun.
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Source: www.dailymail.co.uk