Ahead of ASOS PLC (LSE:ASC) interim results next week, analysts downgraded forecasts due to expectations of persistent pressure on sales.
Analyst Katie Cousins at Shore Capital cut her previous full-year forecast for a 2024 sales decline of 9.4%, which implied a broadly flat second half, after an 18% decline in the first.
She now forecasts sales to fall 13% in the year, with an 8% decline in the second half compared to the same period a year earlier, reflecting a slower-than-originally expected improvement given ongoing economic and industry competitiveness headwinds.
"Our views reflect the wider trading backdrop of balancing a challenging position of supply concerns, still cautious consumer confidence, poor seasonal weather in the UK and dynamic competition," Cousins said.
Shein, the Chinese fast fashion firm, is seen as a major threat that she said "appeals to consumers who want the latest styles at low prices (and seemingly regardless of how it may be made)".
Industry data shows it has rapidly been gaining market share in the UK, and the reports show Shein has achieved global profits of over $2 billion during 2023.
Another trend which the analyst said appears "troublesome" for the UK eCommerce fashion players is the strengthening of marketplaces, circular economy and other 'reCommerce'.
Second-hand platform Depop recently announced it was scrapping selling fees on UK sales, while rival Vinted continues to gain traction with circa 75 million registered users worldwide.
"Both platforms play into interested consumer’s sustainability demands, the ability to gain access to low prices, as well as make money from unwanted items.
"This could be seen as a contrast from the ESG and reputation issues facing the likes of ASOS and Boohoo," said Cousins.
Both listed businesses have faced greenwashing concerns and now have the UK Competition & Markets Authority overseeing regular reporting and claims to ensure that the correct practises and claims are observed.
"This is something which may ease some consumer’s concerns but has also highlighted previous bad practices, which could mean reputation issues that are hard to shake off."
On the plus side, the analyst noted "good progress" by Asos regarding reducing stock levels, which helps support underlying cash flow and profitability.
"However, in order to achieve the reduction, we believe high promotional activity has been occurring on older lines," she said.
All in all, Shore Cap forecasts that profit margins will remain at 2.8%, though with the falling sales, this results in an absolute adjusted EBITDA downgrade of circa 4% to £85.5 million.
The broker reiterated its 'sell' rating.