Online fashion clothing retailer ASOS plc (LON:ASC) (OTCMKTS:ASOMF) is once again in the sights of shortsellers. The U.K-based company has accumulated a short interest of above 5% according to Markit, FT reports. This is apparently the largest bearish bet the company has faced in nearly two years.
Shorts rise in Asos after profit warning
Jim Chanos’ Kynikos Associates has been betting against the fashion retailer. However, Chanos cut his bet to less than 0.5% of ASOS plc (LON:ASC) (OTCMKTS:ASOMF)’s outstanding shares in the first week of June. Asos is one of his profitable short bets as the stock has suffered a loss of 50% in the first half of the year. Other than Chanos, Contour Asset Management also has a 0.6% short position in the company. On the long side, U.K-based Pegasus has a position in Asos. Clothes by Asos have been worn by famous figures like Michelle Obama, Kate Middleton and Rihanna, but celebrity endorsements have not saved the company from profit warnings.
The spike in short interest happened after the company issued its second profit warning of the year on June 5. The company downgraded its profit estimate from 65 million pounds to 45 million for FY2014. The announcement resulted in a dramatic plunge in the stock price that wiped out over 1 billion pounds from the company’s market cap. Asos had issued a previous profit warning in March this year.
Fire at Asos warehouse
A fire broke-out at the largest warehouse operated by ASOS plc (LON:ASC) (OTCMKTS:ASOMF) last Friday. The unit held 159 million pounds worth of goods which makes up almost 70% of the company’s stock. Analysts at J.P.Morgan Cazenove said that Asos is fully insured and this mishap will only have a transient effect on the share price. JPM has an overweight rating on the stock, and the report said that their estimates remain the same and Asos will not suffer from any big fallback due to this incident, except for minor loss in weekend sales which is again insured.
Nomura upgraded Asos to buy in a research note released on Tuesday, June 24. The analysts said that the company is adopting a zonal pricing and promotion model to protect itself against forex changes that have resulted in losses in the past. Nomura also said that the company is moving to localize its offerings, which will help it in improving its profit margins,
“The elimination of warehouse dual running costs, reduced start-up losses in China, order thresholds for free delivery and better carrier rates should cushion the FY15 P&L from this price investment….The US business arguably is losing money. As local competitors improve their service offers, the group is moving quickly to localise through warehouses in Berlin, Ohio and Shanghai.”