Ads
By
Reuters
Published
Mar 18, 2014
Reading time
2 minutes
Download
Download the article
Print
Text size

ASOS shares plunge on higher capex, lower margin outlook

By
Reuters
Published
Mar 18, 2014

LONDON, England - Shares in British online fashion retailer ASOS plunged as much as 20 percent on Tuesday as the firm increased its spending plans to deliver longer term growth at the expense of short-term profits.

ASOS, whose fast-changing fashions are a hit with internet-savvy twentysomethings, attracting fans such as singer Rita Ora, said on Tuesday capital expenditure would increase this year from 55 million pounds to at least 68 million pounds as it steps up investment in warehousing in the UK and Germany and in IT in order to speed up deliveries and cut costs.

The investment will increase the firm's annual sales capacity to 2.5 billion pounds, ASOS said, over 1 billion pounds higher than previously guided, but reduce its operating margin for the year to Aug. 31 to 6.5 percent. Analysts had been expecting that to come in around 7 percent.

Shares in the firm were down 17 percent to 5251 pence at 0832 GMT as analysts pencilled in a fall in full-year profit.

"The lowered full-year operating margin guidance and raised capex support our longer term thesis that the cost of growth will keep coming in higher than market expectations for ASOS," analysts at Liberum said, adding the guidance implied a full-year pretax profit of 65 million pounds, 7 percent below consensus.

ASOS announced the investment increase alongside a 26 percent rise in second quarter retail sales for the two months to Feb 28, below market forecasts of 33 percent, in part due to adverse currency movements in Australia and Russia.

Founded in 2000 by chief executive Nick Robertson, ASOS has been a success story in British retailing. Its shares have almost doubled in the last year, giving it a market value of 5.3 billion pounds, only 2.3 billion pounds less than 130 year-old Marks & Spencer, Britain's biggest clothing retailer.

© Thomson Reuters 2024 All rights reserved.