By James Davey
LONDON (Reuters) – British online fashion retailer ASOS <ASOS.L> said problems with warehouses in the United States and Germany, which were behind a 68% slump in annual profit, were largely behind it, sending its shares sharply higher on Wednesday.
Shares in the firm, which sells fashion aimed at twenty somethings, were up 18% at 0932 GMT, paring year-on-year losses to 40%, after it reported “substantial progress” in addressing its operational issues.
ASOS is working through a major overhaul of its warehouse and technology capabilities, moving from a UK-focused to a global model so it can better access growth opportunities.
It cut profit forecasts in July, saying problems ramping-up warehouses in Atlanta and Berlin had restricted product availability, hitting sales and raising costs.
“With hindsight we were too ambitious in tackling two international warehouses at the same time and our internal capabilities and bandwidth hadn’t kept pace with the changing scale of our business,” Chief Executive Nick Beighton told reporters.
But the problems were now largely fixed.
“From a warehouse perspective our (Berlin) Euro Hub automation issues are now resolved, the U.S. hub operation is stable and capable of scaling to a much greater level,” said Beighton.
“The stock build there (Atlanta) is progressing in line with our internal expectations as we move towards the important peak trading (period).”
Analysts at Peel Hunt said they expected ASOS to aggressively trade the peak/Black Friday period after a poor season last year, driving customer re-activations with stronger discounts and an extended campaign.
“Coming up against last year’s failings, ASOS needs to beat the market’s lacklustre forecasts to rebuild investor confidence,” they said.
ASOS made a pretax profit of 33.1 million pounds ($42.2 million) in the year to Aug. 31 – in line with July’s guidance of 30-35 million pounds but down sharply from 102 million pounds in 2017-2018. Although revenue rose 13% to 2.73 billion pounds, its retail gross margin fell 250 basis points.
While ASOS has struggled, online rival Boohoo <BOOH.L> has thrived. Its shares have increased 74% this year and the firm is now capitalised at 3.2 billion pounds versus ASOS’ 2.1 billion pounds.
ASOS said priorities for its new financial year included strengthening its organisational capability with new hirings, removing non-strategic costs from the business and further increasing product choice, availability and newness.
“Whilst mindful of consumer uncertainty and retail trends in a number of our markets, we are confident in the substantial global opportunity for ASOS and look forward to the future with confidence,” the company said, adding it had made a “solid” start to the 2019-20 year.
Prior to the update, analysts’ were on average forecasting a pretax profit of 63 million pounds for 2019-20, according to Refinitiv data.
(Reporting by James Davey; Editing by Rashmi Aich and Mark Potter)