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MARKET REPORT: Asos shares slump again on fresh sales setback

MARKET REPORT: Asos shares slump another 20% as City analysts warned of a further hit to sales at the fast fashion group

Asos suffered a fresh setback as City analysts warned of a further hit to sales just days after the fast fashion group posted heavy losses.

Shares in the owner of Topshop and Miss Selfridge plunged 20.7 per cent, or 104.5p, to 400.5p – their lowest level since 2010.

The latest slump came as JP Morgan slashed its target price on Asos stock from 1000p to 610p. 

Credit Suisse also lowered its target price on Asos from 680p to 550p. The shares were trading at close to 6000p in early 2021 having peaked above 7700p in 2018.

The analyst notes came after Asos last week reported first-half losses of £290.9million.

Sales slump: Asos has struggled to contend with shoppers returning to brick-and-mortar stores after lockdown as well as reduced consumer spending

Sales slump: Asos has struggled to contend with shoppers returning to brick-and-mortar stores after lockdown as well as reduced consumer spending 

The investment bank told clients the results understandably left investors in doubt over whether a return to profit could be achieved over the next six months.

While it acknowledged Asos has made progress to cut costs, JP Morgan said the slump in sales and cost of refinancing its loan ‘raised questions’.

Asos has struggled to contend with shoppers returning to brick-and-mortar stores after lockdown as well as reduced consumer spending. 

The company has also been hit by huge levels of returns as customers send back online orders. To combat this, it has pledged to axe unprofitable brands as part of a wider overhaul of its business model.

But analysts at JP Morgan warned that sales could slide even further in the short term, while the ‘mid-term growth outlook for the clothing pure-play looks increasingly challenged’.

And in a similar assessment, Shore Capital analyst Eleonora Dani warned that the firm’s ‘laser focus on immediate profitability risks stifling future growth prospects’. 

The FTSE 100 rose 0.3 per cent, or 23.08 points, to 7777.7 and the FTSE 250 gained 0.4 per cent, or 70.38 points, to 19258.75.

Stock Watch –  

Shares in Restore fell after it warned profits would be lower than hoped.

Its technology business, which helps firms to recycle IT equipment, took a hit in a sluggish first four months of this year.

Reports suggest customers are buying fewer new PCs and laptops as demand cools following the pandemic.

As a result, Restore expects to report a profit of between £41million and £43million for 2023, falling short of its previous forecast of £45million. 

Shares fell 8.2 per cent, or 24p, to 270p.

Fresh from defeating a proposal by its top shareholder to split off its Asian business, HSBC unveiled plans to improve its performance across the region.

The banking giant told investors that it wants revenues in the wealth arm to grow by up to 9 per cent in the next three to four years.

It also wants to increase lending by around 15 per cent in the medium to long-term, which could take up to six years.

Ping An Asset Management, a Chinese investment group with an 8 per cent stake in HSBC, has called for an Asia-headquartered and Hong Kong-listed spin-off business.

But the plan to split the company in two was rejected by shareholders at HSBC’s annual general meeting earlier this month, with investors voting by 80 per cent against the proposals. Shares rose 1.9 per cent, or 11.3p, to 611p.

Shares in Royal Mail owner International Distributions Services edged up 0.2 per cent, or 0.5p, to 228.4p despite the launch of a regulatory probe by Ofcom into its dismal performance.

The communications watchdog revealed that for the year to the end of March, more than 26 per cent of First Class mail was delivered late.

The figure is well below Ofcom’s minimum standards for Royal Mail, which is obligated to deliver at least 93 per cent of its First Class post within one working day to meet its legal requirements.

But it was not just First Class which fell below expectations, with 90.7 per cent of Second Class deliveries arriving within three working days, short of the target of 98.5 per cent.

The performance is the worst since the figures were first published in 2007.

There was also good news for rail ticket provider Trainline after wealth manager Stifel raised its rating from ‘hold’ to ‘buy’ and increased the target price from 340p to 355p.

Shares yesterday added 5.5 per cent, or 14.8p, to 282.6p.

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