1Q19 Sales Update

UK-based fashion pure play ASOS brought forward its 1Q19 trading update to issue a sales and profit warning in light of unseasonably warm weather during the quarter and tough trading in November. In the three months ended November 30, ASOS grew total group revenue by 13% at constant currency. As reported, the company grew revenue by 14% to £656 million. The company grew total retail sales by 12% at constant currency. The company’s retail gross margin contracted 160 basis points. ASOS remarked that increased promotional activity in the market led to higher discounts and a greater proportion of clearance merchandise in its sales mix. The company added that these increased discounts and the unseasonably warm weather during the quarter resulted in lower average selling prices which were not offset by a greater number of units per basket. ASOS also claimed that economic uncertainty across several of its major markets and weak consumer confidence “led to the weakest growth in online clothing sales in recent years.” By region, ASOS reported the following:

• UK: ASOS grew UK retail sales 19% year over year, slower than FY18’s 23% growth.
• International: At constant currency, total International retail sales increased 9%, considerably slower than the 24% growth registered in FY18.
• Within International, US sales were up 11%, EU sales were up 14% and Rest-of-the-World sales were down 2% in 1Q19 (all at constant currency).

Outlook

CEO Nick Beighton remarked that despite ASOS achieving sales growth, it was “prudent to recalibrate (our) expectations for the full year” due to the “significant downturn in November.” Management lowered its guidance for FY19 to the following:

• Reported sales growth of circa 15%, down from the previously stated 20%–25% range.
• EBIT margin of 2%, down from 4%.
• Retail gross margin contraction of 150 basis points versus flat growth at 49.9%.
• Capital expenditure of approximately £200 million versus previous guidance of £230 million–250 million.

For FY19, which closes at the end of August, analysts expect ASOS to grow revenues by 22.1% to £2.95 billion. Consensus calls for EBIT to rise 19.7% and statutory pre-tax profit to increase 19.8%. These figures were collated before the latest announcement.