London’s Burning

ASOS and Ocado reported results

Image source: Jens Molin, koosen - Shutterstock

What's going on?

Global online fashion retailer ASOS’s stock burned investors’ fingers as it fell 7% – but a recent fire at e-grocer Ocado didn’t stop its shares rising 5% from the ashes on Tuesday.

What does this mean?

After a December profit warning saw its shares fall 40% in a day, ASOS had a disappointing encore. It reported that sales growth continued to slow in the last three months – and shrank in the US, when ignoring fluctuations in currency exchange rates. ASOS blamed its new Atlanta warehouse: once fully up to speed, it should help the company serve more customers, faster. But when it first opened, American demand far outstripped expectations, causing delays and disruptions to sales.

Similar disruptions were expected after a four-day inferno hit a British Ocado warehouse in February – but the company on Tuesday reported a smaller-than-feared hole burned through last quarter’s sales.

Why should I care?

For markets: Right, but for the wrong reasons?

Late last year, investors began slashing their forecasts for US tech companies’ 2019 profits. Those who read this across to Europe couldn’t have known about ASOS’s and Ocado’s logistics issues hampering earnings – but may have been vindicated by Tuesday’s updates nonetheless. These investors probably did accurately predict the rising costs facing most internet businesses, from warehouses handling physical products to data centers hosting digital ones. And with new competition nipping at companies’ heels, some investors might steer clear this year.

The bigger picture: Maybe London’s just smoldering.

Fresh data released on Tuesday showed that, despite political angst, UK unemployment fell to its lowest level since 1974 in the three months between November and January. Average wages, meanwhile, continued to rise faster than the prices of goods (i.e. inflation), meaning Brits should have a little more spare cash to spend. With the European Union considering a long delay to Brexit, the UK’s central bank might now look past individual company struggles and raise interest rates before too long (tweet this) – hoping to stop prices from rising too quickly in a relatively glowing economy.

Originally posted as part of the Finimize daily email.

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