Asos takes a hit from Omicron as supply chain costs soar

Online fashion giant Asos said it suffered from the spread of the Omicron variant of coronavirus as supply chains were squeezed and revellers stayed indoors.

Chief operating officer Mat Dunn, who is running the business whilst it searches for a new chief executive, said sales remain below pre-pandemic levels but up on last year when heavy restrictions were in place.

He said: “It’s nowhere near back to where it was pre-pandemic. It’s somewhere between where it was pre-pandemic and where it was at the heart of the pandemic.”

The boss added: “Our consumers have been maybe less actively going out to pubs, bars, restaurants and nightclubs but we’ve seen a phenomenon of people wanting to get dressed up for occasions at home.

“I think one of the reasons outerwear has been strong is that people are finding ways to socialise and meet outside.”

His comments came as the company revealed sales in the four months to the end of December rose just 2% to £1.4 billion and profits took a dent as the retailer was forced to discount heavily and spend more on shipping goods to its warehouses.

Rising inflation also meant Asos increased its prices in the “low to mid-single digit” range as costs to the business rose.

However, these were not enough to offset the falling profits.

The interim chief said: “We are trying to protect our consumers as much as possible… but also we look at the relative price points and relative competitiveness of our offer.

“In general, I would say we’re taking less price (increases) on our own ranges than we are experiencing from some of our third party suppliers.”

He added that price rises are taking place on certain items over others, although would not give specifics.

“If you think what the drivers of inflation are – freight, warehousing costs – they will apply to most products,” he said.

Asos said sales in Europe were particularly hard hit, falling 3% to £390 million, with several countries across the continent imposing strict lockdowns.

However, the UK put in a stronger performance where fewer restrictions were imposed.

Sales in the UK rose 13% to £645 million in the four months to the end of December.

In the US there was a 7% increase in sales to £172.6 million “despite significant port congestion and supply chain disruption inhibiting our ability to fully service demand”, the company added.

Overall, gross margins on sales were cut by 4% due to “heightened clearance activity” to sell off poor-performing spring and summer products.

There were also hits from “elevated freight costs and use of air freight to circumvent supply chain constraints and maximise peak trading”.

Mr Dunn said it was too early to say when freight costs would reduce.

He explained: “I’m not sure we see freight coming down this year… what we are seeing is a plateauing of freight prices. I am really confident that freight will come down again but it is dependent on lots of things.”

The boss added: “How much it will come down in the next six to nine months versus how much it comes down in the next 18 months – it’s hard to predict. What we’re trying to do is plan for the worst and hope for the best.”

During the period Asos said it launched a pilot partnership with Adidas and Reebok in the UK, which will now be expanded across Europe.

The Topshop brand outperformed for the retailer since it was bought from administrators and is up more than 200% year on year.

And bosses flagged that a line of products being sold in Nordstrom department stores in the US are performing strongly.

Looking ahead, the company said the Omicron variant continues to cause uncertainty, but underlying pre-tax profits are still expected to be up around 10% to 15% at between £110 million and £140 million.

Separately, Asos announced plans to leave the junior AIM London Stock Exchange and join the FTSE main market next month.