ASOS stock slumps as analysts warn profit gains may not offset sales weakness

British online fashion retailer ASOS warned on Tuesday that annual revenue would come in below market expectations, citing subdued consumer demand and a slow recovery in its fast-fashion business.

The London-listed company said profit would still rise more than 60% from last year but land at the lower end of its previously guided range of £130 million to £150 million ($175 million to $201 million).

The warning triggered a sharp sell-off in ASOS shares, which tumbled as much as 11% in early trading before trimming losses to 9% by late morning.

The stock has now fallen more than 40% this year as investors remain cautious about the retailer’s ability to revive growth in a crowded and price-sensitive market.

Weak consumer demand and rising competition weigh on sales

ASOS acknowledged that its sales performance remained softer than anticipated, with revenue and gross merchandise value both expected to undershoot analyst forecasts.

The company said its full-year revenue would likely decline slightly more than the 8.4% drop expected by analysts on a constant currency basis.

Britain remains ASOS’s largest market, but the company also relies on the United States, which accounts for around 10% of sales.

US tariffs have increased pressure on the business, while Chinese rivals have eroded its share among younger consumers drawn to low prices and faster product cycles.

ASOS has been working to rebuild its fast-fashion appeal among shoppers in their twenties, introducing a new commercial model and clearing older inventory.

Yet analysts say its efforts to re-engage customers are taking longer than expected.

"ASOS' attempts to re-engage customers is taking longer than expected," Deutsche Bank analysts Adam Cochrane and Benjamin Yokyong-Zoega wrote.

They noted that weaker sales in the second half mean adjusted earnings before interest, tax, depreciation and amortization will miss consensus forecasts by around 5%.

Cost cuts boost margins but sales revival remains uncertain

Despite the disappointing revenue outlook, ASOS emphasized that profitability is improving.

The group pointed to “meaningful” cost-saving measures implemented between March and September, which are expected to deliver benefits in the new financial year.

Margins have improved as the retailer focused on what it called “higher quality sales” and avoided steep discounting.

Berenberg analysts said gross margins were moving higher and could strengthen further as ASOS continues to adjust its sales and distribution model.

They estimate revenue at constant currency fell 7% in the second half of the fiscal year, leading to a 10% drop across the year as a whole.

Stock outlook: investor confidence hinges on sales revival despite profit gains

However, questions remain over ASOS’s brand equity and ability to achieve sustainable growth.

JP Morgan analysts said they “struggle to become more constructive” on the stock despite acknowledging progress on cost control and efficiency.

Deutsche Bank analysts said that while ASOS has dealt with inventory overhang and introduced a new commercial model but boosting sales is proving a challenge.

"The online fashion retailer remains on the right track but investors may soon start questioning whether it can deliver sales growth without hitting margins," they said.

Looking further ahead, ASOS maintained its guidance for fiscal 2026, saying profit and free cash flow should be in line with market expectations.

Management insisted that the company has strengthened its foundations and is well placed to generate long-term value.

But analysts warn that profitability gains alone will not satisfy investors unless sales growth returns.

“After strengthening its foundations by clearing old stock and cutting costs, the focus shifts to growing sales without hitting profitability,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“Amid intense competition, the road ahead looks bumpy.”