ASOS blames warehouse ramp-ups for sales growth miss

By James Davey

LONDON (Reuters) - British online fashion retailer ASOS (ASOS.L) missed analysts' forecasts for sales growth in its latest trading period, saying it had reined in marketing efforts as it focused on ramping up warehousing space in Germany and the United States.

Though the company said it would meet analysts' profit expectations for its 2017-18 financial year and sales growth estimates of 25-30 percent, albeit at the lower end of the range, its shares fell as much as 13.3 percent on Thursday.

Listed on London's junior AIM market, ASOS shares had risen 13 percent in the year to Wednesday's close, and the stock had been trading at 67 times forecast earnings, one of the highest multiples in the sector, giving little margin for error.

Its market capitalisation of 5.47 billion pounds ($7.23 billion) is 400 million pounds higher than that of retail stalwart Marks & Spencer (MKS.L).

ASOS, which sells fashion aimed at twentysomethings, said total retail sales rose 22 percent to 802.7 million pounds in the four months to June 30 - below analysts' average forecast for growth of 25.8 percent and the 27 percent growth it reported in the first half.

"As well as managing 22 percent growth we’re also managing demand around very key infrastructure programmes,” Chief Executive Nick Beighton told reporters.

In the next few weeks, ASOS will open a 1 million square feet warehouse in Atlanta in the United States, and in early September will open the second phase of its 800,000 square feet 'Eurohub' warehouse in Berlin.

“There’s certain quarters where you go for growth and certain quarters where you manage demand around your infrastructure periods – the last four months has been categorised by that,” said Beighton.

He declined to comment on the share price fall.

ONLINE SALES TAX?

ASOS' UK sales rose 23 percent and were up 21 percent in its overseas markets. The firm's retail gross margin rose 130 basis points, which it said was "ahead of plan".

Analysts at HSBC said the roll-out of new European data privacy laws, which impose new requirements on how companies collect and process personal information, was also a factor in holding back ASOS' sales growth. European Union General Data Protection Regulation (GDPR) went into effect on May 25.

ASOS said it expected a full year pretax profit in line with analysts' average forecast of 101 million pounds, up from 80 million in 2016-17.

"Performance is more about what ASOS has chosen not to do, rather than what it has done," said analysts at Peel Hunt, who have a "buy" rating on the stock.

"U.S. activity has all but stopped ahead of the new Atlanta warehouse coming on-stream and management has also dialled down on EU activity ahead of the automation of Eurohub 2 going live," they said.

Beighton said ASOS' trading since June 30 was going well, particularly full price sales, and he reiterated mid-term guidance for revenue growth of 20-25 percent and an operating margin of about 4 percent.

While ASOS and online peer Boohoo (BOOH.L) continue to report robust sales growth, Britain's traditional clothing retailers such as M&S, Debenhams (DEB.L) and House of Fraser are closing stores.

This has prompted calls from traditional bricks and mortar retailers for a relaxation of business rates - property taxes for businesses - and for the imposition of an online sales tax to level the playing field.

"Business rates is a archaic structure that needs to be modernised from where we are now," said Beighton.

"That doesn't necessarily mean I support a tax online. In the UK we have tax for online sales called VAT (value added tax), the same as everybody else."

($1 = 0.7569 pounds)

(Editing by Jason Neely and Mark Potter)