ASOS shares slump as its sales growth forecast disappoints investors
October 18, 2016 01:05 PM
(Bloomberg) --ASOS Plc shares tumbled the most in almost four months as the sales growth forecast from the U.K.’s largest online-only fashion retailer disappointed investors.
Sales will increase by 20% to 25% in its 2017 financial year, the London-based company in a statement Tuesday. That implies a slowdown at constant currency rates, according to Michelle Wilson, an analyst at Berenberg.
“Much of this expansion is now priced in and, given the investment made in the globalization of the business, is not without risk," Wilson said by email.
ASOS, No. 22 in the Internet Retailer 2016 Europe 500, slumped 7.7% to 4,921 pence at 11:10 a.m. in London, giving the company a market value of 4.1 billion pounds ($5 billion). The intraday drop of 9% was the biggest since June 24. Prior to today, the shares had surged 55% in 2016 as investors bet it would be one of the few British retailers to benefit from the U.K.’s decision to leave the European Union. The slump in the pound is a boon for ASOS, as it pays for more than 80% of the clothing it buys in pounds and about 57 % of its sales are made outside of the U.K.
ASOS has used the savings from the drop in sterling to cut prices for international customers in an effort to win market share in Europe and the U.S.
“We can lower our prices with confidence because we are an export business and we will prosper from the weaker pound," chief executive Oofficer Nick Beighton said on a call with reporters.
Given ASOS’s plan to lower prices to drive growth, its targets are conservative, according to Jamie Merriman, an analyst at Sanford C. Bernstein. “We expect that as the year develops, management may need to raise sales guidance upwards,” she said in a report.
ASOS reported a 31 % drop in pretax profit to 32.7 million pounds in 2016 as a result of one-time charges totaling 31 million pounds. These included a settlement payment in a trademark infringement dispute and charges for the closure of its Chinese operations.