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Asos expects £14m hit after Russia exit

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·Finance Reporter, Yahoo Finance UK
·4-min read
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Asos  A model walks on an in-house catwalk at the ASOS headquarters in London April 1, 2014. British online fashion retailer ASOS posted a 22 percent fall in first half profit, reflecting its move to step-up the pace of infrastructure investment to meet future demand. The firm said on Wednesday it made a pretax profit of 20.1 million pounds ($33.4 million) in the six months to Feb. 28, down from 25.7 million pounds in the same period last year. Picture taken April 1, 2014.   REUTERS/Suzanne Plunkett (BRITAIN - Tags: BUSINESS FASHION)
Asos swung to a £15.8m loss in the six months to the end of February. Photo: Suzanne Plunkett/Reuters

Asos (ASC.L) is preparing for a £14m ($18.2m) hit as a result of its decision to halt sales in Russia.

The online fashion retailer said the move to exit Russia would also cut revenue growth by 2%, as that market previously accounted for about 4% of its business.

The retailer said it sank to a pre-tax loss for the six months to the end of February, spending heavily on an overhaul to win over more customers longer term.

Sales still rose by 1% to £2bn in the six month period but a £106.4m pre-tax profit in 2021 turned to a £15.8m pre-tax loss for the six months to the end of February.

In the UK sales grew 8% to £895.5m, although the company admitted it missed out on sales for events in January.

Asos said it felt the effects of supply chain disruption and limited stock availability, and expects the next six months to be more challenging due to inflationary pressures.

Read more: Shell to write off up to $5bn on Russia exit

Chief operating officer and finance chief Mat Dunn said: “Asos has delivered an encouraging trading performance, against the continuing backdrop of significant volatility and disruption.”

He added: “We’ve entered the second half of the year well placed, and believe that our stock position, with increased product availability and newness, will stand us in good stead.”

Sales in Europe were up 1% to £577.4m, where there was greater impact from supply chain problems and COVID restrictions — particularly in France.

And in the US sales jumped 11% to £252.7m, where bosses are hopeful of winning over new business. This included the successful launch of two physical sites inside department store Nordstrom and plans for two new 'retail concepts' in February.

Shares in the company have lost 69.4% of their value over the last year, but were trading 6.2% higher on Tuesday morning.

Asos remains hopeful that sales growth will accelerate this year, highlighting improvements in stock levels, a return of event and holiday-led demand, and an easing of supply chain issues.

Losses were attributed to £30.6m spent on upgrading the business.

These included £7.9m on launching a new strategy for the fashion retailer, £5.5m to move from the junior AIM stock market to the main FTSE stock exchange, £18.3m relating to its Hertfordshire office and £6.4m spent on its takeover of Topshop.

Gemma Boothroyd, analyst at Freetrade, said: “ASOS is losing some steam. Its lacklustre first-half revenue and customer growth aren’t a disaster, but they sure don’t paint a picture of optimism either.”

Victoria Scholar, head of investment at Interactive Investor said: “Investors have lost confidence in Asos with the stock down more than 70% in just over a year.

Read more: H&M to close 240 stores as it targets new markets overseas

“This marks a major turnaround from during the pandemic when it was a key beneficiary of demand for stay-at-home stocks. Since life has reopened and restrictions have ended, companies like Asos, Deliveroo (ROO.L) and Zoom (ZM) have all struggled.

“This year, pulling out of Russia and Ukraine accounted for around a 4% drop in revenues and £20m in profit.

“The broader tech sell-off also dragged Asos lower amid concerns about what the prospect of higher interest rates could meet for some of the more debt-laden companies in the sector.

“On top of that, rising cost inflation for Asos, a highly price sensitive business, is eating away at margins as it is unable to materially increase its prices. All of this in combination with the global supply chain woes suggests that Asos could continue its downtrend.”

Matt Britzman, equity analyst at Hargreaves Lansdown, added: “'The broader online retail sector finds itself in somewhat of a sticky spot, with inflation at levels not seen for years the squeeze on finances will slowly start to feed into changing buying habits.”

Watch: The risks of buying now and paying later

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