ASOS toppled again

ASOS's share price chart is reminiscent of the internet boom. How fortunes rise and fall. A fire at its Barnsley warehouse in June and the strong pound hurt the online retailer's fourth quarter. Sales slowed and management now admit profits are unlikely to improve over the next 12 months. That's forced City analysts to slash forecasts and the share price to plunge, again.

Sales rose just 15% during the three months to August compared with 25% over the previous quarter - currency fluctuations wiped out growth in the US where sales had risen 17% in quarter-three, and a big decline in Australia and Russia meant Rest of the World sales actually fell 5%. International sales grew just 6% to £141.7 million, while heavy promotion activity drove UK sales up by a third to £98.3 million.

As expected, chief executive Nick Robertson estimated that the fire cost ASOS £25-£30 million of sales during the quarter, slashing retail gross margin by about 200 basis points. Add back insurance proceeds and pre-tax profit for the year to 31 August 2014 should meet City forecasts.

But, crucially, the current financial year will be no better. "We'll make significant investments in our international pricing and proposition, as well as in our logistical infrastructure and technology platform," said Robertson. "As a result, we expect profit before tax for the year to 31 August 2015 to be at a similar level to 2013/14."

According to Numis Securities, that implies an operating margin of only about 4%. In response, the broker has slashed forecasts for pre-tax profit in 2015 from £62 million to £45 million, giving adjusted earnings per share (EPS) of 41.2p. It's pencilled in £44.3 million and 40.6p for 2014 - results are due on 21 October.

Numis remains positive, pointing to "a targeted demographic, fashion credibility, quality own-brand, content, range of 3rd-party brands, and investment in delivery offer - is sufficiently differentiated to support significant long term profitable growth."

Unfortunately for ASOS there are other kids on the block now, companies doing the same thing with their own brand of "cutting-edge fast fashion". ASOS shares are down 70% this year and by 10% on this news alone. Yet at 2,165p, they still trade on over 52 times forward earnings, an eye-popping valuation multiple for no growth this year. Bottom-fishing is a temptation here…assuming this is the bottom.

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