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Can Asos Handle Fast Fashion’s Headwinds?

The abrupt departure of the fast fashion e-tailer’s CEO alongside a warning that profits could fall sharply this year have raised the stakes for the company’s strategy update next month.
Asos advertising campaign.
Asos advertising campaign. (Asos)

Asos enjoyed a pandemic-fuelled boom. Now the fast fashion e-tailer is facing a much more challenging environment.

On Monday, the company announced the abrupt departure of long-standing chief executive Nick Beighton and forecast a sharp decline in profits, as headwinds from freight and duties costs, inflation and supply chain snarls continue to blight retailers across the board. Rival Boohoo also trimmed earnings forecasts last month.

Despite the current headwinds, Asos has flagged ambitions to hit £7 billion ($9.5 billion) in sales within the next four years — almost double its current full-year revenue, but it must deliver on that in an increasingly competitive market.

Investors have yet to be convinced. The company’s share price fell as much as 16 percent Monday. Asos said it would lay out its growth strategy in more detail at a capital markets day next month.

“If ever there was a set of results that were least about the results themselves, this was it,” said John Stevenson, partner and retail analyst at specialist UK investment bank Peel Hunt. With all eyes on who will be named Beighton’s replacement — and a reset on profit guidance — “it’s really about the future,” Stevenson said.

For the full year to Aug. 31, Asos reported revenue up 20 percent to £3.91 billion, but growth is slowing for the fast-fashion e-tailer. The company’s gross profit margin fell two percentage points, which the company said was largely down to heightened freight costs, Brexit, currency fluctuations and growing investment in customer experience. The group warned that adjusted pre-tax profits could fall to between £110 million and £140 million next year, down from £193.6 million this year.

Chief financial officer Mat Dunn has stepped in to oversee day-to-day business as chief operating officer, with director of group finance Katy Mecklenburgh serving as Dunn’s interim replacement. The search for Beighton’s successor will begin soon, the company said. There were changes at the board level, too. Chair Adam Crozier is departing to become chair of BT next month and will be replaced by Ian Dyson. New appointments include Jørgen Lindemann, formerly a board member of European fashion retail giant Zalando, who joins Nov. 1.

Dunn said he expects to see the challenges currently facing Asos and its peers, including freight costs and inflation, mostly dissipate within the second half of the financial year — though they will continue to have a bearing on full-year guidance. “These headwinds are temporary, and we have made a very conscious decision not to let them distract us from continuing to invest to capture the huge potential in front of us,” he said during a call with analysts and investors Monday.

To help drive future growth, Asos committed to annual capital expenditure of between £200 million and £250 million over the next three to four years, which will mostly go towards underlying tech investments, AI, customer data and experience and growing automation of its operations, Dunn told analysts and investors Monday. The company also plans to increase its marketing spend.

The company’s plans to ramp up expansion and build brand awareness in the US will be crucial to the investments paying off. “From a … relevance point of view in the UK, they’re nailing it,” said Stevenson. “The question is, of course, can [Asos] deliver that kind of relevance and that kind of growth in the States? And if so, how do they go about it?”

The company’s partnership with department store chain Nordstrom and acquisition of Topshop, which has strong brand name recognition among US shoppers, are two key levers for the company’s bet on the US market, said Stevenson, which it has been looking to break into for some time.

But the company is also facing increasingly fierce competition from ultra fast fashion players like Boohoo and Shein, which has enjoyed explosive growth this year.

“Shein is really taking up market share, and nobody wants to call it out, but that’s what’s happening,” said Eleonora Dani, an analyst at Shore Capital.

Related articles:

Asos CEO Nick Beighton Steps Down as Sales Growth Slows

The Search for the Next Shein

Why Price Inflation Is Coming to Fashion


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