Asos warns on profits as customers send back more purchases

Asos issued another profit warning, sending its shares down by a fifth on Thursday, with the online fashion retailer blaming rising inflation for a growing rate of product returns.

The London-based group said it expected adjusted pre-tax profit to be between £20mn and £60mn, a substantial reduction from its previous guidance of £110mn to £140mn.

By early afternoon its share price had declined 27 per cent to 830p, its lowest level in at least a decade.

Rival Boohoo also flagged higher rates of returns in a scheduled trading update. It did not adjust its forecasts but its shares also fell sharply.

Asos chief operating officer Mat Dunn told analysts there had been a notable step-up in returns from March into April and that it was assuming this rate would persist for the rest of the financial year.

Returns eat into profits for online retailers because processing is largely manual and the returned items often have to be marked down when they are resold.

The statements from the rival retailers highlighted the stark pressures now facing discount online fashion groups that before the pandemic had soared in value.

However the retailers made contrasting predictions on how badly their customers would be hit by the cost of living crisis.

Dunn said twentysomethings were “more exposed because their average discretionary income is lower and rent is a huge pressure in lots of countries at the moment”.

He added that analysis of returns suggested economic considerations were the main reason for the pick-up in returns. “We strongly believe there has been a change in consumer sentiment”.

However Boohoo chief executive John Lyttle argued that young consumers were likely to be more resilient. “[They] are often in college or university or their first job,” he said. “They are more likely to be living at home and less likely to have a mortgage or a car lease or large rent bills”.

Widespread survey evidence suggests that customers are likely to tighten their belts in response to higher payroll taxes and rising food and energy costs, but some retailers such as Marks and Spencer have said they do not expect this to begin in earnest until the final quarter of the year.

Asos played down the prospect of charging shoppers to return items, as Spanish fashion rival Zara has recently started doing. “We still think free returns are a core part of our offer,” Dunn told investors on a call. “There are lots of other things we could do [to reduce costs] if the behaviour persists”.

But Lyttle said charging for returns, as Boohoo already does in the US, “is a lever we can pull and we keep it under review” although he added that as a value retailer it needed to remain competitive on overall pricing.

The latest alert at Asos follows a warning in October last year, which led to the departure of then-chief executive Nick Beighton. Dunn has run the company since but had indicated he did not want the top job.

The company on Thursday said José Antonio Ramos Calamonte, who previously worked at Inditex and Carrefour and is currently chief commercial officer, would be promoted to the top job and that Dunn would return to the chief financial officer role he previously held.

Jørgen Lindemann, appointed as a non-executive director last November, will succeed Ian Dyson as chair. Dyson stressed Lindemann was “completely independent” despite his links to Bestseller, the privately owned Danish group that is Asos’s biggest shareholder.

Boohoo did not alter its previous guidance for full-year sales growth in the low single digits and underlying profit margins of 4 to 7 per cent.

But Andrew Wade, an analyst at house broker Jefferies, said the company’s guidance of flat first-half revenue would now be “a stretch” and that he was cutting his full-year forecasts by about 9 per cent.

Boohoo’s shares were down 10 per cent at 57p by early afternoon on Thursday, only slightly ahead of their 50p price at IPO in 2014.

It said the adverse return rates were largely down to changes in the mix of products that consumers were buying.

Finance director Neil Catto pointed out that sales growth in the first quarter to end-May was 21 per cent in the UK before adjusting for returns, and 9 per cent group-wide. Net group sales after returns were down 8 per cent