More than £400m was wiped off the value of internet clothing giant Asos on Tuesday after it warned higher warehouse costs and start-up losses in China would hit annual profits.
Investors were also spooked by a chequered sales performance as breakneck growth stuttered at home and abroad. UK sales were up 21% for the first two months of 2014, which was short of the 28% pencilled in by analysts and a sharp slowdown from the 32% increase for the six months to 28 February. Underlying growth in the division that takes in Australia and Russia was 15% for the two-month period, below forecasts of 24%.
“February was a bit soft,” said chief executive Nick Robertson. “It was muted across the board. Christmas was strong for most people and I don’t think people had much money in their pocket.” March had got off to a stronger start, he added.
Asos’s shares have doubled in value over the last year, making the retailer, which is a favourite of singer Rita Ora and US first lady Michelle Obama, worth £5.3bn when the stock market closed on Monday. Shares plunged as much as 22% on Tuesday morning – their biggest one-day fall since October 2008 – but later recovered to close down 8% or £5.26 at £58.
“You can’t win these days – you grow like stink, invest for the future, and (still) take a hammering,” said Robertson, who owns a 9.3% stake.
The website, which targets fashion-conscious twentysomethings, said it was increasing this year’s capital spending budget to £68m as it presses on with an extension to its warehouse in Barnsley, Yorkshire, and plans for a “Euro hub” in Berlin. The figure was £13m more than previously stated and reflects the cost of renting additional space in Bradford while the work is completed. In the long term the extra capacity will enable the retailer to handle annual sales of £2.5bn. It is on track to turn over £1bn in the year to August.
Losses at its fledgling Chinese operation will also run to £9m this year rather than the £6m previously indicated. The changes mean the company now expects to make profits of around £65m compared with its previous guidance of £69m.
Bank of America Merrill Lynch analyst Tushar Jain said the retailer was suffering “growing pains”. “We think ASOS is one of the top structural growth online stories in the sector and we think the market has underestimated its long-term sales potential in fragmented clothing markets worldwide.”