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Online retailer ASOS hit by teething problems at U.S. warehouse

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Online retailer ASOS hit by teething problems at U.S. warehouse
FILE PHOTO: A model walks on an in-house catwalk at the ASOS headquarters in London April 1, 2014. REUTERS/Suzanne Plunkett/File Photo   -   Copyright  Suzanne Plunkett(Reuters)
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By Paul Sandle

LONDON (Reuters) – British online retailer ASOS said its new U.S. warehouse in Atlanta had struggled to cope with demand in its second quarter, resulting in a dip in U.S. sales and adding to challenges in the French and German markets.

Chief Executive Nick Beighton said the U.S performance of the company, which targets fashion-conscious millennials, was behind plan because higher-than-expected demand at its new facility caused a significant despatch backlog, which had now been cleared.

“These delayed shipments will be recognised in (quarter three) and U.S. trading is now regaining momentum,” Beighton said on Tuesday.

The problems in Atlanta come as a further blow after the group issued a shock profit warning in December, reflecting a downturn in trading and sending its shares to a four-year low.

The stock, which had regained some ground lost in December, was trading down 2 percent at 31.48 pounds by 0919 GMT.

ASOS reported an 11 percent rise in total retail sales at constant currency rates to 641.3 million pounds ($850 million) in the quarter to Feb. 28, below its 15 percent revised target for the year and a long way off the 25 percent the market had come to expect from an online fashion leaders.

Hargreaves Lansdown analyst Laith Khalaf said the valuation placed on ASOS shares by the market had fallen as sales growth slowed. They were still relatively pricey at 47 times earnings, though that was significantly lower than the 70 times they traded at last year.

“Investors will be hoping this is just a stumble, rather than a fall from grace,” Khalaf said.

Beighton said ASOS continued to outperform in Britain, with sales growth of 14 percent in the quarter, but its two biggest markets in continental Europe – France and Germany – continued to be challenging.

“We will be increasing investment in price and marketing in the second half, particularly in France and Germany,” he said.

“Given the actions we are taking together with an improving U.S. performance, we believe the group will deliver stronger growth in the second half.”

Beighton said he was confident the group would meet the full-year targets it lowered in December, when it also cut its earnings before interest and tax (EBIT) margin target to around 2 percent, blaming a poorly executed Black Friday promotional campaign.

(Editing by Louise Heavens and David Holmes)

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