Asos Is Another Retail Casualty of a Weak Consumer: Street Wrap

(Bloomberg) -- Asos Plc plunged the most in more than four years after cutting its sales outlook, showing that the online fashion retailer isn’t immune to the challenging weather and promotional environment that’s affecting the sector, according to analysts.

Sales growth in the year ending in August will be about 15 percent, Asos said in a statement Monday, down from a previous range of 20 percent to 25 percent. November was “significantly behind expectations,” with the company pointing to the backdrop of economic uncertainty across many major markets, together with a weakening in consumer confidence.

The shares tumbled as much as 41 percent, the most since June 2014, to 2,450 pence. The news dragged e-commerce peers Boohoo Group Plc and Zalando SE down as much as 20 percent and 18 percent, respectively. Next Plc sank as much as 8.5 percent and Marks & Spencer Group Plc lost as much as 4.7 percent. Boohoo’s business remains strong and is “comfortably in line with market expectations,” the company said in a statement.

Here’s a round-up of what analysts are saying:

Bloomberg Intelligence, Charles Allen

The revised revenue growth target as a result of a very weak November echoes the problems of other retailers during the same period. “The company’s low-key participation in Black Friday discounting seems to have exacerbated the consumer slowdown but hasn’t prevented significant margin erosion for the year with knock-on effects to cash flow.”

Berenberg, Michelle Wilson

(Buy, PT 8,300p)
A “strategy error over Black Friday” was a major contributor to lowered outlook. Current trading across the retail sector is “clearly very difficult to analyze at present,” with dramatic changes in the timing of purchases. The growing importance of the Black Friday sales suggests that consumers are only buying when significant discounts are being offered, “a sign of a weak consumer.”

Citi, Adam Cochrane

(Buy, PT 7,000p)
Asos is “another casualty of the weather and associated promotional environment.” Monday’s update will see a material cut to full-year sales and Ebit margin estimates and “and may see questions raised on the ability of the company to finance the transformation without additional resources.”

Morgan Stanley, David Gardner

(Underweight, PT 3,200p)
Although the weak November trading isn’t a surprise, Asos halving its full-year Ebit margin guidance is surprising. The retailer also lowering its full-year capital expenditure forecast “could imply they are expensing more costs.”

To contact the reporter on this story: Lisa Pham in London at lpham14@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Phil Serafino

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