Asos profits slump on restructuring costs

Online fashion retailer Asos posted a slump in full-year profit on Wednesday as it took a hit from restructuring costs.

In the year to the end of August 2019, pre-tax profit fell 68% to £33.1m even as revenue rose 13% to £2.7bn. Analysts had been expecting pre-tax profit of £31m.

Asos, which said its performance had been "disappointing", attributed the decline in profit to "a number of transitional impacts from the logistics transformation programme and warehouse implementations undertaken in the year". The company had already warned in July that full-year profit would be between £30m and £35m, falling short of analysts' expectations of £55m.

UK retail sales were up 15% to £993.4m and international retail sales were 11% higher at £1.7bn.

Diluted earnings per share slumped 70% to 29.4p, gross margin was down 240 basis points to 48.8% and the retailer said it swung to net debt of £90.5m versus net cash of £42.7m the year before.

Chief executive officer Nick Beighton said: "This financial year was a pivotal period for Asos, where we have invested significantly and enhanced our global platform capability to drive our future growth. Regrettably this was more disruptive than we originally anticipated. However, having identified the root causes of our operational issues, we have made substantial progress over the last few months in resolving them.

"Whilst there remains lots of work to be done to get the business back on track, we are now in a more positive position to start the new financial year."

Asos said the majority of its transformation programme was now behind it and it ended the year in a better position than it began, having made a "solid" start to FY20.

At 0940 BST, the shares were up 17% to 2,998p.

Richard Hunter, head of markets at Interactive Investor, said the contrast with the full-year numbers this time last year was striking.

"At that time, Asos was celebrating pre-tax profits growth of 28%, improving gross margins and early signs of encouragement with its international expansion ambitions," he said.

"What followed was a year which the company would rather forget. The company had bitten off more than it could chew, and two profit warnings, outages at warehouses in Germany and the US not only revealed a deeper malaise but could even have brought the relevance of the brand into question. As the company saw nearly half of its market value evaporate, it needed to take drastic action to stem the decline. As a result, the reported numbers are fairly dire."

He said investors will be hoping these numbers represent a line in the sand.

"The initial share price reaction to the results reflects a leap of faith, after management assurances that the latter part of the year was rather more positive, to the extent that it can look forward to the next period with confidence."