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(Sharecast News) - Shore Capital has reiterated its 'sell' recommendation for fast fashion retailer Asos, saying the company is "paddling upstream" with ongoing sales pressure, high debt levels and competitive threats..
Ahead of the company's first-half results due on 17 April, Shore Capital has cut its revenues forecasts for the year ending 31 August by 4% to £3.08bn, representing a 13% drop year-on-year, which is near the bottom end of company guidance for a 5-15% decline.
"Our cut is driven by ongoing sales pressure, which we perceive will have persisted beyond H1 FY24F, so leaving more to do in H2 than originally expected and what may be achievable," the broker said.
Meanwhile, Shein's continued market-share gains in the UK continue to be a threat for Asos, Shore Capital said. While Shein faces its own headwinds and concerns around disclosures, which could impact its plans for a stock-market debut on Wall Street, it could possibly float in London, the broker suggested.
Sustainable options are also a competitive risk to Asos, the broker said, with recommerce platforms like Depop and Vinted continuing to thrive amid ongoing 'greenwashing' allegations that seem to weigh on the reputations of both Asos and rival Boohoo.
"Whilst the progress in supporting profit is encouraging, ASOS is still suffering with its top-line sales, and continues to be restricted by its debt levels," Shore Capital said. "It is promising that restructuring plans are underway and also to see unchanged margins guidance during the recent trading update, however, overall, this space remains tough, and visibility is low, in our view."
The broker said its fair-value estimate for Asos's shares suggests more than 20% downside to current levels, justifying the 'sell' stance.
The stock was down 2.3% at 342.2p by 1204 BST.
