News Column

Pounds sterling 1bn wiped off ASOS by second profit warning

June 6, 2014

By Peter Campbell, Daily Mail, London

June 06--ASOS'S tenure as a stock market darling came crashing to an end after its second profits warning in the space of three months.

More than pounds sterling 1bn was wiped from the value of the company after the AIM-listed stock fell by 31pc the worst one-day fall in its history.

Shares in the online retailer have ballooned in the past ten years, leading to stratospheric growth in the company's value and making it a favourite for investors. They peaked at above pounds sterling 71 in February, but yesterday closed 1403p lower at 3120p.

A triple-whammy warning yesterday saw shareholders flee the company as ASOS said profit margins would be 4.5pc, rather than the expected 6.5pc.

The share collapse comes only days after Goldman Sachs encouraged its clients to pile into the stock, in a humiliating turn of events for the Wall Street goliath.

ASOS blamed a strong pound for hitting its profit expectations.

More than 60pc of its sales are overseas, and these tend to be higher margin than its UK operations. But because all of its products are sold on a single website, the company is tied into charging a single price for each item, and is unable to raise or lower prices in different markets.

This left some customers facing price increases of up to 25pc because of changes to the exchange rates forcing ASOS to offer discounts that further cut its profitability.

Rather than the normal 3pc of its stock that are discounted at any given time, almost one item in ten on the company's website was on offer.

Analyst Bethany Hocking at Berenberg bank said that the promotions 'appear to have been mismanaged' which had dealt a 'brutal' lesson to management.

Analysts at Oriel said: 'Management will have a tough job explaining how the margin has missed guidance by so far and so suddenly.' Singer Capital Markets analyst Matthew McEachran said: 'The's news will come as a shock to many and is also worse than we had feared.'

ASOS chief executive Nick Robertson said: 'This result is not what we'd hoped for and there have been an unusual combination of factors that have affected our profitability this year.' He added: 'We are totally focused on rolling out the Asos business model globally as the world's leading online fashion destination for twentysomethings.'

Last October he sold 840,000 shares when they were trading at more than pounds sterling 52 each. If he had sold the same tranche yesterday, his haul would have been pounds sterling 16m less.

He still holds 10pc of the shares in the company he founded.

Robertson and Quentin Griffiths founded ASOS in 2000, originally calling it AsSeenOnScreen, to offer low-cost versions of fashion outfits sported by celebrities. It floated at 20p a share on the junior AIM market in 2001.

The company's stock market value soared past pounds sterling 6bn earlier this year when its shares hit a record high, but last night it was worth a more modest pounds sterling 2.6bn.


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Source: Daily Mail (London, England)

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