Earnings goal at Asos at risk from inflation and Ukraine war

British online fashion retailer has lost business due to a suspension of sales in Russia

Asos, a British online fashion retailer, said its full-year earnings goal is at risk from accelerating inflation and disruption from Russia's war in Ukraine.

The retailer said on Tuesday it is maintaining its forecast for the fiscal year ending in August, except for the loss of business due to a suspension of sales in Russia.

The stock touched a two-year low and later whipsawed, rising as much as 3.8 per cent on a forecast for sales growth to accelerate in the second half as shoppers buy more clothes for social events and vacations.

Asos has suffered a change in fortunes over the past year as its winning position in online retail during Covid lockdowns was weakened by stores reopening.

The shares have lost a third of their value this year as shopping habits normalise, and the retailer is still seeking a chief executive officer to replace Nick Beighton, who stepped down in October.

Chief operating officer Mat Dunn, who is overseeing the business during the hunt for a new CEO, said that while Asos is selling 10 dresses a minute at the moment, inflation and its potential impact on discretionary spending may pose a threat for the retailer.

“What we are noticing is a degree of caution around consumer sentiment and the fact that that hasn’t fully been felt by consumers yet,” he said in a phone interview. “We’re probably in a situation where predicting the second half is as difficult as it’s ever been.”

Asos said its inventory is better, comparisons with the year earlier are becoming easier, and it’s boosting advertising in markets outside the UK that have lagged. Supply-chain issues are also improving.

The operating loss in the first half was £4.4 million (€5.3m) compared with earnings of £109.7 million in the year-earlier period.

Engagement

The search for a new CEO is progressing, Dunn said, without giving guidance on the timing of an appointment. “There’s an awful lot of engagement, but the job is to secure the right person.”

After passing on some higher prices to shoppers earlier, Asos does not plan further increases for the rest of the financial year, according to Dunn. The retailer is trying to stick to offering value to consumers, and may benefit from shoppers choosing its brands rather than higher-priced alternatives, he said.

Asos’s forecast is for pretax earnings of £110-£140 million. Analysts have been expecting £103 million. The company said the economy has worsened since it gave the guidance in October, and there’s more risk than normal in the second half.

The suspension in Russia will cut 2 per cent off annual revenue and £14 million from profit, Dunn said.

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