The ASOS PLC profit warning may not be as bad as it gets for the online fashion retailer, leading Barclays to slash its target price for the shares but hold on to its neutral rating as it sees “green shoots” in the US market.
Newly promoted to the FTSE 250, the company said inflation had a bit impact on its profitability in the past quarter due to the impact of customer returns, and warned it was “too early to tell” how long such patterns of consumer behaviour will continue.
Barclays analysts said they worried whether these elevated levels of returns are “the pre-cursor to a more material slowdown in gross demand”.
Industry data checks suggest competition from China-based rival Shein is “ramping up materially”, with a consumer survey indicating that ASOS does not compare well with peers among its core demographics in a downturn
While a lot of Thursday’s announcement was expected, “what surprised was the magnitude” of the 64% guidance downgrade, the analysts added, “and the lack of conviction that this is as bad as it gets”.
However, the analysts said they have not downgraded their rating from 'equal weight' as they think that “there are signs of green shoots in the US market with growth accelerating off the launch of ASOS Premier”.
Barclays cut its share price target by 33% to 1075p.