Downgrades in order for ASOS after profit warning, say analysts

5th Jun 2014 10:20

Analysts at Oriel Securities said they expect to cut their forecasts for ASOS significantly after a profit warning from the online fashion retailer.Speaking in a note before the open, Oriel said: "The shares will get hurt [...]. They have fallen a long way but the quantum of the warning will mean serious pain this morning. "The read across to other online retailers will be poor, but we fear that there may be something ASOS-specific going on here."The company said that because of a higher mix of UK and European sales, which have lower retail margins, together with increased promotions, its earnings before interest and tax (EBIT) margin for the current financial year would be 4.5%, down from its previous forecast of 6.5%."24 hours ago we were expecting 30 basis points of improvement in the gross margin," Oriel said."Management will have a tough job explaining how the margin has missed guidance by so far and so suddenly." The broker suspects that there has been price pressures across all markets.Oriel has put its rating for the stock under review, but said that forecasts are "clearly going to come under massive pressure" with downgrades of "at least 30%" for the current year.Analysts at Numis Securities chose to remain more upbeat, keeping a 'buy' rating despite cutting its profit forecasts after the "disappointing" update."While we recognise that this update reflects a significant reset in the financial outlook for ASOS, particularly as it adjusts to a less favourable Sterling backdrop, we continue to believe that the quality of the customer proposition supports a significant global growth opportunity; investment to support this growth and drive efficiencies continues, and customer metrics are moving ahead strongly."The stock was 29% lower at 3,210p by 10:37, having fallen by as much as 40% early on.BC