Asos shares fell by around 40% as investors expressed their shock at the recent profit warning. September and October trading had been doing well but they had a disastrous November which resulted in the company deciding to trim its full-year forecasts.
This was made all the more surprising by the fact that the company had been talking UP its prospects until fairly recently.
Everyone is now panicking about whether this is an Asos-specific thing or a sign that online retailers are now feeling the pinch as much as offline ones.
Clearly if the former is the case then the sector may have been oversold following the news – but if it’s the latter, then newsflow in the sector could get even worse.
Those who argue that this is Asos-specific say that their sales targets were too punchy given the retail environment and that they may have got their pricing wrong for the Black Friday period and point to the fact that its smaller competitor Boohoo seems to be fine.
Those who argue that this is an early sign of a broader problem point to weakness in the share price of its European rival Zalando.
Personally, I think that Asos shares’ extreme move will provide beady-eyed investors with some money making opportunities as the whole sector was sold off.
The UK Retail Sector
Basically, Asos shares’ bad news is just the latest in a sector that’s taken a real battering in the last year or so.
Toys R Us, Poundworld and Maplin went under this year and the likes of Mothercare, Homebase, Carpetright, New Look and others have had to enter into CVAs to continue trading and customers are now being offered discounts of 43% on average to tempt them to spend.
On the positive side, the latest figures from Barclaycard show that people are still willing to spend on “experiences” with ticket sales up by 30.5%, pub spending up 11.3% and restaurant spending up by 8.3%.
When you consider that, on the consumer side, we’ve currently got the lowest unemployment rate since the 70s, a record number of job vacancies, pay rising faster than inflation and ultra low interest rates making borrowing cheaper it seems that the main thing holding people back is confidence in personal finances. We basically need clarity on Brexit!
