ASOS sees £1.5bn wiped off value after profits warning

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Online fashion retailer ASOS has issued its second profits warning in three months after the strength of the pound hit overseas sales and forced it into a rash of promotions.

Shares slumped by as much as 40 per cent – wiping £1.5bn from its market value – as it said growth in international revenues in the third quarter to the end of May was just 17 per cent, compared to 48 per cent in the same period last year.

The weakness prompted the retailer, which achieves a high proportion of revenues from womenswear, to ramp up promotions. These normally represent 3 per cent of sales but this rose to 8 per cent.

The offers were not enough to offset the decline in performance overseas – a market representing 60 per cent of sales – where customers are finding ASOS products more expensive because of the strengthening pound, which has risen 10 per cent over the last year.

Chief executive Nick Robertson admitted that its profit performance for the financial year was “not what we had hoped for” as the group slashed its expected underlying earnings margin from 6.5 per cent to 4.5 per cent.

With the company targeting £1bn sales for the financial year, it implied a fall in profits from £65m to £45m.

It comes after the firm warned in March that the costs of new warehousing in the UK and Germany as well as start-up expenses in China would hit earnings. Half-year pre-tax profits fell 22 per cent to £20.1m.

Mr Robertson – who together with other executives is on a long-term bonus scheme tied to hitting tough financial targets by 2015 – said sales in the third quarter to the end of May were strong, up 25 per cent across the group and 43 per cent in the UK.

“However, sterling’s continued strength has resulted in a slowdown in our international sales growth to 17 per cent,” he added.

It means that overseas growth has been slowing for four successive quarters. US turnover was up 17 per cent in the latest period, compared to 59 per cent a year ago, while EU revenues growth of 37 per cent compared to a 56 per cent lift for the same period 2013.

For the rest of the world, sales growth slowed to a trickle of 1 per cent compared to 38 per cent a year earlier. Mr Robertson said the result was a higher proportion of sales in the UK and Europe, where margins are lower, and increased promotions.