Shares in online clothing retailer ASOS (LON:ASOS) tumbled as much as 20% in early deals as it warned over margins and told investors that it would increase investments.
It intends to make capital investments of at least £68mln in the current year, up from previous guidance of £55mln. Consequently, earnings margin is expected to be reduced to around 6.5%.
The company said it will accelerate investment in warehousing and IT, as well as its start up in China.
ASOS reckons the increased investment in warehousing will enhance its sales capacity to £2.5bn, up from £1bn.
Thanks to a strong first six months, to February 28, in which sales increased 34% compared with last year, the company says it is confident of achieving £1bn of sales for the 2013/14 financial year.
“It has been an exceptionally busy period of activity at ASOS, with continued growth and accelerated investment,” chief executive Nick Robertson said.
In morning trading following the trading update, ASOS shares were down 14.5%, or 914p per share, changing hands at £54.10 each.
At previous levels the value of the popular share left little room for manoeuvre, according to broker Oriel Securities.
“Whilst we do not disagree with the business strategy and accept the need for high levels of investment, the shares are priced in to deliver significant Revenue, EBIT and EBIT margin progression in the long term,” the broker said in a note.