ASOS falls 40% on profit warning

Image source: Rawpixel - Unsplash, Stephen Marques, yunro - Shutterstock

What's going on?

Shares of ASOS – the online “destination for fashion-loving 20-somethings” – were down almost 40-something on Monday after the UK-based retailer sent investors a shock profit warning (tweet this). For some, it’s the opening of the seventh seal of the retail apocalypse…

What does this mean?

ASOS, which sells over 850 brands in more than 200 countries, reported sales for the last three months that were below expectations. While the company’s September and October were okay, November – an important month for retail – crashed and burned.

Unseasonably warm weather was partly to blame: shipping a t-shirt costs the same as a winter coat, but its lower value makes for a lower profit margin per order. The same holds true with discounted items – something ASOS had a lot of in order to keep up with rival price-slashers. Perhaps most worrying for investors, though, is the fact that online retailers apparently aren’t immune to the effects of a wibbly economic outlook and wobbly consumer confidence. And there may be darker days ahead: ASOS also lowered its sales and profit forecasts for 2019.

Why should I care?

For markets: Red suits you, retail stocks.

ASOS’s mayday dragged retail stocks down all over Europe. Rival tumbled 14%, Swedish chain H&M slipped 9%, and German giant Zalando – Europe’s biggest online retailer, and already a potential takeover target – fell 12%. Everyone knows bricks-and-mortar retailers are having a tough time: the number of people physically visiting British stores in November was the lowest since the 2008 recession. But ASOS isn’t likely to be the only digital boutique seeing previously stellar growth start to falter…

The bigger picture: Retail’s decline is contagious.

The retail downturn isn’t limited to Europe: across the Atlantic, US retail stocks have had a terrible quarter. A basket of leading US retailers has fallen 18% since late September, with the sector overall on course for its worst quarter since 2008, according to the Financial Times. That’s not to mention falling retail sales growth in China, too.

Originally posted as part of the Finimize daily email.

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