Online fashion retailerASOS(LSE: ASC) is falling once again today, after the companyissued its third profit warning in the space of a year.
ASOS now expectspre-tax profit for the year ending August 2015 to come in at a similar level to this year,around45m against previous expectations of 62m. For the three months to the end of August this year, ASOSs sales grew by just 15% year on year. UK sales expanded 33% but international sales rose by just 6%.
Furthermore, for the first time in 10years, ASOSs pre-tax profit is expected to fall this year. Pre-tax profit of 45m is expected, compared to 55m last year.
Unfortunately, the company has fallen victim to the strong pound, which has forced ASOS to slash prices within international markets to keep customers loyal.According to the retailer, a strong pound has hurt sales within markets such as Russia and Australia where prices, in sterling terms, have risen around 20% over a twelve month period.
A fire at the companysBarnsley warehouse also dented fourth-quarter sales by around 30m.
Commenting on todays trading statement,Nick Robertson, CEO, commented:
Our UK performance remained strong over the final quarter, with sales increasing 33%Engagement with our customers remains positive with a 25% growth in active customers and increases in order frequency, conversion rate and average basket valueWe remain focussed on the long term opportunity for ASOS, with 2.5bn of sales as our next staging post.
Boosting investment
To compete with local competitors and offer a better quality of service, ASOS is planning a significant international investment programme next year. The program aims to bolster the companyslogistical infrastructure and technology platform, in order to streamline the groups order processing.
Long term, this investment should boost ASOSs competitiveness and quality of service, ultimately improving margins and profitability. However, long-term growth is going to come at the expense of short-term profitability. Nevertheless, with around 60% of ASOS sales now coming from international markets, the group needs to plan for the future.
Some good news
Still, there was some good news today, although the news was bittersweet. ASOS fourth quarter sales growth was actually better than some analysts had been predicting. That said, quarterly sales growth came at a cost to gross margins, as ASOS discounted products heavily in order to compete with peers such asBoohoo.com, which have been grabbing market share.
In the year to 31 August ASOSs gross margin declined by230 basis points, compared to the year ago period. Whats more, during the third quarter ASOSs gross margin contracted further, falling 640bps compared to the year ago period.
An expensive bet
At present levels, and even after recent declines, ASOS trades at a forward P/E of around 60, which seems expensive for ASOSs faltering growth.Theres no doubt that ASOSs lofty valuation may put some investors off.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of ASOS. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.