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ASOS – retail misery extends online; “Trading Update” = Trading Shocker!

By Steve Moore | Monday 17 December 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Online retailer ASOS (ASC) “announces a trading update for the first three months of the financial year”. Uh oh – not ‘pleased to announce’ then?

It argues “solid growth in sales of 14%”, though “we experienced a significant deterioration in the important trading month of November and conditions remain challenging. As a result, we have reduced our expectations for the current financial year”. The shares exceeded 7700p earlier this year and although down to a 4186p prior close that still compared to earnings per share of sub 100p delivered last year and approaching 120p previously forecast this – and such a rating thus still meant room for considerable disappointment if expectations aren’t met.

The company argues weighting will shift “to an even more substantial weighting towards the second half of the current financial year… as a consequence of our current trading experience” and adds “we have significant headroom within our existing banking facilities and continue to anticipate returning to a free cash flow positive position in FY20”… but then also states that in the UK “consumer confidence is increasingly fragile as evidenced by the most recent BRC data”, that in its two largest EU markets - Germany and France - trading conditions “have become significantly more challenging” and in its ‘Rest Of World’ segment, “our revenue performance has been significantly behind our expectations with sales YTD -3%”.

Good luck with second half and underlying cash flow improvement then! And even that sees revised guidance of “EBIT margin: c.2% (previously c.4%)” on “sales growth: c.15% (previously +20-25%)” – so the delivered 14%, not really “solid” then! With great valuations leading to great investor disappointment if expectations are not met, it is not surprising to see the shares currently circa 40% lower on the back of the announcement at around 2500p. However, that still looks a hefty rating for a company in a period of heavy expansion transition amidst an admitted “current backdrop of economic uncertainty across many of our major markets together with a weakening in consumer confidence”.

Thus, still not one I’d want to own – and hopefully our general retail sector warnings have been heeded. I note fellow online fashion retailer boohoo (BOO) has updated stating its “trading performance remains strong… continues to trade comfortably in line with market expectations” – differences in trading and what this all means for the wider stockmarket are covered by Tom in today’s Bearcast HERE.

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