MARKET REPORT: Asos falls out of fashion after profits downgrade

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Shares in Asos traded close to a 12-year low as investors fretted about the impact the cost of living crisis was having on fast fashion retailers.

The FTSE 250 business tumbled 2.6 per cent, or 18p, to 667p following reports over the weekend that it had been privately briefing City analysts that its profits for the year to the end of August will be at the lower end of expectations.

In June, the company predicted profits for the year of between £20million and £60million, much lower than its original forecast of between £110million and £140million.

Fashion victim: Asos fell 2.6% following reports over the weekend it had been privately briefing City analysts that its profits will be at the lower end of expectations

It blamed high levels of customer returns for the downgrade. Asos also warned analysts that sales growth for its coming year was likely to fall below the market’s predictions of 9.8 per cent.

One anonymous analyst said they were ‘slightly uneasy’ about how the company was managing expectations. 

Meanwhile, Eleonora Dani, analyst at broker Shore Capital, said it was worrying for an orderly market in Asos shares given evidence of the firm having ‘deliberately selective conversations with analysts’. 

She added: ‘We would take a very dim view of the possibility, never mind the reality, of such behaviour.’

Reports about the scaling back of its forecasts is yet more bad news for Asos, which has recently been marred by a series of negative updates including the departure of its finance boss, an investigation by regulators into its ‘green’ claims and complaints from suppliers about cancelled orders.

The profit forecast is also likely to make investors increasingly worried that the outlook for retailers is becoming bleaker.

The sentiment appeared to be weighing on the sector as a whole, with shares in rival Boohoo slumping 2.3 per cent, or 1.03p, to 43.17p.

Stock Watch – Ashtead Technology

Ashtead Technology shares briefly traded at near record highs after it said it had bought a Norwegian firm specialising in sub-sea dredging.

The equipment rental firm, which listed in London last year, acquired WeSubsea in a deal worth £5.6m to bolster its position in the sub-sea market.

It came as Ashtead Tech reported profits of £7.6million for the six months to the end of June, up from £3.9million a year ago. However, by the end of trading yesterday, shares fell 0.2 per cent, or 1p, to 260.5p.

Retailers both online and on the High Street are coming under increasing pressure as the cost of living squeeze forces people to cut back on spending on non-essential items such as new clothes.

The FTSE 100 crept up 0.09 per cent, or 6.24 points, to 7287.43, while the FTSE 250 slumped 1.19 per cent, or 223.54 points, to 18629.68.

Markets appeared to mostly shrug off the election of Liz Truss by Conservative Party members as party leader and Prime Minister, seemingly paying much more attention to the growing energy crisis in Europe after Russia’s state-backed energy giant Gazprom shut off the key Nord Stream 1 gas pipeline indefinitely at the end of last week.

Hargreaves Lansdown analyst Susannah Streeter said the closure was ‘the worst case scenario’ for European leaders and seemed to show Russia was using energy supplies as its ‘big weapon’ in the war in Ukraine.

UK natural gas prices surged by over 20 per cent following the closure of the gas pipeline, while oil prices also jumped sending Brent crude to over $96 a barrel. 

As a result, shares in the energy giants received a boost with Shell rising 1.03 per cent, or 24p, to 2348p and BP gained 2.1 per cent, or 9.65p, to 463.35p.

Major miners, many of whom earn most of their revenues overseas, were among the biggest blue-chip risers on the back of the weak pound. 

Glencore gained 4 per cent, or 18.25p, to 471.5p, Antofagasta added 1.8 per cent, or 19.5p, to 1121p, Anglo American jumped 0.6 per cent, or 17.5p, to 2769p and Rio Tinto rose 0.7 per cent, or 32p, to 4732.5p.

Animal drugs firm Dechra Pharma reported a strong rise in profits as it cashed in on higher demand following a boom in pet ownership during the pandemic.

The firm posted a profit of £96million for the year to the end of June, up 16.2 per cent year-on-year, while revenues rose 13.8 per cent to £682million. 

But shares dropped 10.6 per cent, or 370p, to 3126p, which eToro analyst Adam Vettese attributed to concerns about the firm’s ‘lofty valuation’.

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