How Asos’ Profits Plunged 68% Despite Booming Sales

It’s been a challenging year for Asos, the fast-fashion brand that Wednesday reported its full-year profits are down 68%.

The company has been plagued with logistics problems since opening its first U.S. distribution center in Atlanta at the end of the last fiscal year, and those costs, combined with executive restructuring and an intense promotional environment driven by online competitors like Boohoo and Missguided, drove up Asos’ expenses significantly. Per share earnings fell 70% for the year to 29.4p ($0.38 USD).

This put a damper on otherwise solid results, with sales up 13% over 2018 to £2.73 billion ($3.5 billion), including 15% growth in the U.K., despite significant Brexit-related economic headwinds. According to the British Retail Consortium, retail sales in the country have grown at an average pace of 0.4% over the past 12 months, the weakest pace since it first began collecting data in 1995.

Asos also surpassed 20 million active customers worldwide (up 10% year-over-year), including 13.9 million based outside the U.K., its most established market.

For the coming year, though, the question remains: Are the retailer’s troubles behind it?

Investors seem to be hopeful because the company’s stock jumped more than 29% Wednesday, after falling more than 49% during the past year. Asos also says its restructuring costs — including hiring four new C-suite executives — will go toward fixing the problems it saw this year. “Developing our organizational culture towards a more joined-up, empowered and efficient model in support of our global ambitions is also a key priority for us over the next few years,” it wrote.

It’s not without competition, though: Faster, cheaper rival Boohoo last month reported a 43% increase in first-half sales and a 78% jump in earnings per share, as sales at its Nasty Gal brand doubled.

In a statement, Asos CEO Nick Beighton acknowledged the rocky year the company has had but said it is now in a “more positive position” to get the business back on track. “Our focus now shifts to ensuring that we enhance our capability to drive an improved customer experience and leverage the benefits from the investments we have made. With over 60% of our revenue coming from international customers and a strong global logistics platform with capacity to grow, we are well positioned to take advantage of the global growth opportunity ahead of us.”

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