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Faltering Christmas Sales Forces Asos Issuing Profit Warning

Faltering Christmas Sales Forces Asos Issuing Profit Warning
A “significant deterioration” in trading in the run-up to Christmas has led the United Kingdom online retailer Asos to issue sales and profits warning for the rest of the year.
The company “experienced a significant deterioration in the important trading month of November and conditions remain challenging” even though it delivered sales growth of 14%, said the group in an unscheduled trading update for the first three months of the financial year.
This prompted the company to bring down the expectations for profits of the current current financial year.
The company is not expecting a sale growth of 15 per cent for the rest of the year ending in August of 2019. The company had earlier pegged the number to be between 20 per cent and 25 per cent, while it expects its earnings margin, which it has revised, from 4 per cent to 2 per cent.
The warning resulted in a drop in the share price of the company in morning trade, loosing 36 per cent to 2,667p
This warning by the online retailer is a potential cause of alarm for retailers because till now it was only the high street brands and companies that have been hit the most because of a very slack demand for the Christmas shopping period.
Asos’s profits were brought down because it had been forced to increase its own special offers due to a high degree of discounting and promotional activity which was being done by all retailers across the market.
Asos also pointed out to a trend of reduced spending by shoppers because of the unexpected warm weather during the last three months.  
However, it has continued to “materially outperform” in the UK market, Asos said. but the company has had to pay a price for this as it has had to engage in greater promotional activity than the company had planned initially and the trend among consumers to chose products that were priced lower.  
The company has been more significantly plagued by challenging business and trading conditions in Germany and France, which comprises about 60 per cent of the total sale of the company in the EU.
“Whilst trading in September and October was broadly in line with our expectations, November, a very material month for us from both a sales and cash margin perspective, was significantly behind expectations,” Asos added in a stock market update.
“The current backdrop of economic uncertainty across many of our major markets together with a weakening in consumer confidence has led to the weakest growth in online clothing sales in recent years. We have recalibrated our expectations for the current year accordingly,” it added.
Boohoo, the rival company of Asos, also issued its own update because of the warning from Asos in which the company said trading is “comfortably in line with market expectations” because of record Black Friday sales

Christopher J. Mitchell

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