ASOS Shares Plunge In Value: Is The Online Shopping Bonanza Slowing?

Shares in the online clothing retailer ASOS dropped another 23% on 17 July following a second profits warning from the fashion giant. The first profits warning in December 2018 saw shares drop around 37%, and the company is now trading at just over £21.

Is it worth buying shares in ASOS now?

The two profits warnings have caused ASOS’s share value to drop by 60%, so canny investors with an eye for eCommerce could well consider ASOS worth a punt over the longer timeframe, but it’s unlikely they’ll pick up anywhere close to making day traders a decent profit, though.

Reasons For The ASOS Shares Plunge

ASOS state the main reason for this second profits warning is due to lower than anticipated sales growth in Europe and the United States, which has been exacerbated by warehouse and inventory problems. These stock issues meant that lines of clothing available to fashion shoppers in the US and Europe were limited.

ASOS still does expect to be in profit for the year, to the tune of £30mn -£35mn, however this is well below analyst expectations of around £55mn.

The company’s Chief Executive, Nick Beighton, said: “The major overhaul of our infrastructure has been bumpier and taken a lot longer than we originally anticipated. We acknowledge that this is a failure in execution.” He added that these issues would all be solved by the end of September at the latest.

ASOS does appreciate that these problems may be short-term, but they are likely to impact on customer trust immensely.

The good news for the brand is that sales in the four months to the end of June have risen by 12%, and the strong UK customer base meant sales actually grew by 16%.

The two international ASOS warehouses in Atlanta and Berlin were where their stock issues originated, so the four months to June 2019 saw increased sales of just 5% and 12% respectively.

The investment director at AJ Bell, Russ Mould, commented: “Fashion fans have plenty of places from which to buy clothes and so ASOS is at risk of losing out to the competition if it cannot fix its problems fast. We live in an impatient world where so many people want something in an instant. If ASOS doesn’t have the stock ready to ship then consumers will simply go elsewhere.”

Over the longer term, though, investors need to consider whether the rapid growth displayed by ASOS and other online retailers will actually be sustained and these profits figures could well sound alarm bells for many traders.