ASOS setback leads to CEO departure, and Asian markets press ahead with tech stocks back in favour

ASOS

“The market had a sense that life has been a bit of struggle for ASOS, given the gloomy update from rival Boohoo in recent days which seemed to confirm that the fast fashion industry was not enjoying the best of times,” says Russ Mould, Investment Director at AJ Bell.

“The scale of the problems at ASOS appear to have been underestimated but the company parting ways with its chief executive is less of a surprise. Nick Beighton has been struggling to steer the ship through problems that go back quite a few years.

“The near-term outlook is somewhat bleak for ASOS. Sales growth is expected to slow quite dramatically; cost pressures and supply chain problems could remain intact for a while, which means profit margins will be squeezed; and consumer uncertainty could result in volatile trading patterns.

“ASOS is guiding for pre-tax profit in the year of £110 million to £140 million, which is 35% below the market consensus forecast of £193 million if you take the mid-point of the profit range.

“Nick Beighton had risen through the ranks of ASOS in his 12 years with the company, moving from chief financial officer to a dual role as chief operating officer and numbers man, and then CEO in 2015.

“He took the top job just as the fast fashion movement was really going places, but that success also brought in more competition and the big players in the industry had to spend big on marketing to keep their brand front and centre for consumers.

“Cost inflation is a problem affecting multiple industries, so not something that can be blamed on Nick Beighton. But he appears to have lost his position in the company due to a struggle to sustain momentum in the business.

“ASOS seems to have found it hard to keep up with the fast fashion movement in recent years, coming under criticism for not being able to turn around new product designs quickly, experiencing warehouse problems and poor stock availability.

“The company ploughed on with expansion in places like the US. It secured the crown jewel from the Arcadia empire, buying Topshop earlier this year, but it has not had time to put the brand to proper use.

“Customers have so much choice with where they buy clothes and competition continues to grow, with the likes of China’s Shein making a big mark on the UK. Players must either excel in one or more categories of price, product range and quality, and ASOS will need to do something extra to make it stand out from the crowd.”

Markets

“Asian markets kicked off the new week with a sense of optimism, with a 1.9% rise in the Hang Seng index and a 1.6% advance from the Nikkei. Europe was more mixed, with the Dax slipping back 0.2% but the FTSE 100 managing to plough ahead by 0.3% to 7,116.

“Hong Kong was driven by a resurgence in tech stocks, as investors bought into the sector following a big sell-off earlier this year due to regulatory pressures on internet and education stocks.

“Alibaba jumped 7.4%, extending its five-day run to 26%. Investors appear to be taking the view that all the bad news (and more) is already priced in, leaving these previous stock market darlings ripe for buying on cheaper ratings than seen in recent years.

“Electronics group Panasonic was the biggest riser on the Nikkei, with automotive stocks also in fashion.

“The UK market was led by miners and energy stocks, with construction and gambling among the day’s losers.

“This week sees US banks kick off their third quarter earnings season and expectations are high for those with investment banking operations, thanks to a boom in M&A activity.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.