ASOS predicts 70% plunge in annual profits as teething troubles with new warehouses persist

The opening of the new distribution hubs in Atlanta and Berlin was supposed to lead to a sales surge for ASOS, instead, they’ve caused nothing but problems

asos parcels
Even with the recent share price drop, ASOS is still valued at more than £2bn

ASOS plc (LON:ASC) took a battering once again on Thursday after the online clothes retailer issued another huge profit warning, this time blaming ongoing teething problems at its new warehouses in Europe and the US.

The company, one of the biggest on AIM, warned that pre-tax profits would plunge by more than two-thirds in 2019 to between £30-35mln, down from £102mln last year.

Shares collapsed by 17% to 2,275p at the opening bell on Thursday.

READ: What went wrong with ASOS's US business in February?

Twelve months ago, they were changing hands for 6,000p, before a shock profit warning in December sent the stock tumbling.

Investors had thought, or at least hoped, that the pre-Christmas issues, which were to do with poor trading over the key Black Friday period, were firmly in the past.

But bosses said in March that the new US$40mln distribution facility in Atlanta, Georgia had struggled to keep up with demand in its opening few weeks, forcing ASOS to switch deliveries back to its hub in Barnsley.

The company kept its guidance, which it had lowered just before Christmas, in place, but the problems have persisted, while there have also been troubles at the new facility in Berlin.

Higher costs, weaker sales

It now expects it will have to fork out an extra £12mln to fix the problems, on top of the previously announced transition costs of £35mln.

As a result of the growing pains, ASOS is guiding for sales to grow by around 11% in 2019, slightly below forecasts, while margins are set to shrink by a bigger-than-expected 250 basis points.

At £100mln, net debt will also be double what the retailer had previously estimated.

Problems 'fixed by September'

"Whilst we are making good progress in improving customer engagement, our recent performance in the EU and US was held back by operational issues associated with our transformational warehouse programmes," said chief executive Nick Beighton.

"Embedding the change from the major overhaul of infrastructure and technology in our US and European warehouses has taken longer than we had anticipated, impacting our stock availability, sales and cost base in these regions."

"We are clear on the root causes of the operational challenges we have had, are making progress on resolving them, and now expect to complete these projects by the end of September."

Quick facts: ASOS PLC

Price: 2820 GBX

Market: AIM
Market Cap: £2.81 billion

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