ASOS warns that warehouse transition problems will hit profits

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ASOS has warned that higher warehouse transition costs combined with lower sales will impact pre-tax profit, which is now expected to be in the range £30-35 million for the year.

In a trading statement for the four months to 30th June, the online retailer said growth in the US and EU was lower than anticipated, with sales impacted by operational challenges from on-going warehouse transformation programmes in Berlin and Atlanta.

“Execution of this programme is progressing, however the speed of ramp up in our Euro Hub automation and stock build within our US Hub has been behind our ambitious expectations. This has restricted product availability and range for our customers in these territories and we have seen a corresponding impact on sales as well as additional costs in support of transition. As a result, while visits growth across the group has shown positive momentum, sales have been held back by availability where we have seen operational challenges.”

EU sales grew five per cent as a result of weaker stock availability than planned “reflecting the challenge of embedding new automation software in our Euro Hub. While installation of the equipment was completed in line with plan, we have found challenges in ramp up as we increased the volume of stock being processed through the systems.

“Challenges with the interaction between our automation and warehouse software meant the expected efficiencies have been delayed and this has correspondingly impacted availability. As a result, order growth of 11 per cent lagged visits growth of 19 per cent. Sales were further impacted by the ASP mix of available product.”

Sales growth in the US, at 12 per cent, was held back by slower than planned build of branded stock in the Atlanta warehouse with orders and ABV affected.

“Third party brands providing product to the US for the first time proved slower to resolve US specific compliance issues than we had anticipated and we have not yet received the width of range from some of our more established brand partners. ASOS Design, which was not impacted by these issues, grew at a pleasing 26 per cent.”

Total group sales for the period were up 12 per cent to £919.8 million driven by a strong performance by the Barnsley distribution centre which serves the UK and RoW regions.

ASOS has revised its guidance for the year saying retail gross margin would be down 250bps, while pre-tax profit would be £30-35m after c.£47m transition costs (previously c.£35m) and c.£3.5m restructuring costs.

Chief executive Nick Beighton said: “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. Despite these short-term challenges, the move to a multi-site logistics infrastructure will enable us to offer customers across the world our market leading proposition, facilitate our future growth, as well as leading to longer-term efficiency benefits.”

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