JPM takes 'neutral' stance on Asos after profit warning

Analysts at JP Morgan Cazenove downgraded shares of fashion retailer Asos to 'neutral' from 'overweight' on Monday following the group's profit warning last week.

The bank also cut its price target on the stock to 3,800p from 4,400p, as it said risks to Asos - which reduced its 2019 pre-tax profit guidance by 35-40% - were currently "finely balanced".

The analysts pointed out that Asos' profit warning was driven by "operational issues in both the Euro Hub and US warehouses", causing a lack of availability, with a knock-on impact to sales and markdown/gross margin.

JPM said the impact on profits was exacerbated by associated incremental operation expenditure along with some restructuring costs.

"Whilst this warning was not, therefore, demand-driven, it does provide a strong reminder of the transitional phase that the business is currently navigating through," said the analysts.

"With the building blocks to rebuilding profitability being currently unclear, and the likelihood that top-line growth will continue to be impacted, at least in the near term, by operational issues and associated customer disappointment (which will reduce visibility over any improvements to underlying trends in the business) we believe that the risks are currently finely balanced."

On the upside, JPM said it continues to see Asos as "a long-term beneficiary of structural trends".

At 1320 BST, Asos shares were down 1.19% to 2,155p.