Spending plans cause share troubles at ASOS

After announcing it would invest in infrastructure to meet demand and consequently damage short-term profits, shares at British online retailor ASOS hit rock bottom.

Whilst the company’s shares had doubled over the year to a stock market value of GBP 5.3 billion pounds at close of Monday, shares shrunk 22% on Tuesday – the largest single day fall since October 2008.

History and rival

Launched in 2000 by current chief executive Nick Robertson, ASOS has been a perennial favourite of 20-somethings across the world, with stars such as U.S. First Lady Michelle Obama and singer Rita Ora being notable fans.

The waning results could be due to the launch of Boohoo, offering similar – yet cheaper – fashion items online.

Boohoo’s share price jumped 50% after its float last week.

 “Can’t win”

“You can’t win these days,” noted Robertson.

“You grow like stink, invest for the future and (still) take a hammering.”

The rising online demand has caused some of the problems.

Originally, the brand aimed to increase capital expenditure to GBP 55 million – however now the figure is set at GBP 68 million as the retailer aims to increase warehouse capacity and improve IT systems.

This investment will increase ASOS’ yearly sales capacity to GBP 2.5 million relatively quickly, however combined with a China start-up, the firm warned that its 2013/14 operating margin would be reduced to 6.5% – 0.5% below analyst expectations.

This pushed the shares down to a five-year low, and wiped GBP 720 million from the company’s market value.

“This is costing us but it’s our belief it’s the right thing to do,” Robertson said.

The company reiterated its belief that 2013-14 year profits would be boosted by achieving sales of over GBP 1 billion, and analysts expect sales growth totalling around 30% year on year.

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