EUR 850.00 For Business Accounts Only

Morningstar | ASOS Issues Profit Warning Due To Warehousing Issues. Shares Cheap

We expect to reduce our fair value estimate for ASOS by a mid- to high-single-digit percentage after the company announced a profit warning. We consider warehouse operational disruptions affecting revenue and costs to be temporary and still consider shares to be attractive after recent month declines. Full-year revenue growth is now expected by the management to be in line with current trends (11% constant currency and 12% reported increase over 10 months to June 30 with 15% previous guidance). Profit before tax is expected to be GBP 30-35 million (versus GBP 59 million in our estimates) and net debt at the year-end is expected to be GBP 100 million (versus GBP 50 million expected previously) (this would imply net debt/EBITDA of over 1 time in yearly results by our estimates, which we view to be on the high side for a company with volatile earnings and negative free cash flow). The company signed a revolving credit facility of GBP 350 million.

The company attributed weaker than expected performance to hiccups in its warehouses in Europe and the U.S. (those regions grew by 3% and 6% in the last four months in constant currencies, respectively). In Europe, a shift to automated warehousing systems resulted in reduced stock availability (11% order growth versus 19% growth in visits, further exacerbated by negative mix effect). U.S. operations were affected by lower product availability from the third-party brands, which haven’t shipped to the U.S. before and were slow to resolve U.S.-specific compliance issues. The company expects to solve issues in Europe by the end of September and in the U.S. by the end of Autumn. However, customer appeal may take longer to restore in these markets.