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Asos blames warehouse issues for 68% plunge in profits

Edmund Heaphy
Finance and news reporter
An Asos distribution centre near Barnsley, South Yorkshire. The complexity of a warehouse expansion dented the firm's profits. Photo: Yahoo Finance UK

Online clothing behemoth Asos (ASC.L) on Wednesday said that full-year before-tax profits fell by 68% to £33m, largely because it was not “adequately prepared” for complications related to the restructuring of its warehouse network.

The firm had widely signalled that the botched warehouse reorganisation, which limited stock availability in both the US and Europe, would dent its bottom line.

“The financial and operating performance of Asos has been disappointing this year,” the company said on Wednesday.

“The huge investment we undertook in transitioning us into a business with scale and operational capability in both the EU and US has been more challenging than we foresaw.”

In particular, the retailer said that it underestimated the impacts of a major operational change on two continents.

And because its internal operations had not kept pace with the expansion of its warehouse footprint, Asos warned that it had also “lost focus” on core areas like product development, presentation, and customer engagement.

Despite the difficulties, Asos saw a 10% increase in “active customers” — a key measure for the firm — to 20.3 million, in the 12 months to the end of August.

Orders increased by 14% to 72 million, pushing revenue for the year up 13%, to £2.7bn. Profits were dented by £45m in transition costs, which Asos said were substantially made up of one-off costs related to the warehouse transition.

It also spent £5.5m on restructuring related to organisational changes.

Retail sales in the US climbed by 9%, while those within the European Union jumped by 12%. The biggest growth was seen in the UK, where sales increased by 15%.

While gross profit for the year increased by 8%, the firm’s margins fell by 2.4 percentage points to 48.8%.

The results demonstrate the extent to which typically nimble online retailers face the kinds of problems seen by traditional high-street stores.

In July, Asos issued its third profit warning in seven months and flagged the impact of the restructuring plan.

“Although a sharp drop in earnings and a sharp rise in net debt make for ugly reading, this is arguably old news. Investors are now bidding up Asos’s shares because management are confident they have a solution to fix operational issues,” said Russ Mould, investment director at AJ Bell, in a note.