Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Asos cuts outlook confirming the bleeding in e-commerce
Peter Garnry
Chief Investment Strategist
Summary: E-commerce stocks are down 66% over the past year having shredded almost all of their gains during the first phase of the pandemic. In hindsight it looks like e-commerce was in a bubble driven by a massive shift in spending from services to goods while interest rates plunged to record lows fueling equity valuations to astronomical levels. The UK-based e-commerce company Asos confirmed today that the outlook is deteriorating for fashion e-commerce due to the worsening cost-of-living crisis.
Was e-commerce a bubble?
When we look across our theme baskets we observe a sea of losses this year. Crypto is naturally the biggest casualty in “the great reset”, but e-commerce is the second biggest loser down 52% year-to-date and down 66% over the past year. E-commerce was initially hit by the pandemic as everything stopped, but then the world came roaring back causing e-commerce stocks to surge like crazy. In the second phase logistics cost went vertical and supply chains could disrupted to a degree that began to eat into profits of e-commerce businesses which was visible in Q1 with Amazon making an operating loss in its e-commerce business. The next phase hitting e-commerce is the cost-of-living crisis, created by terribly high energy and food inflation, reducing demand for discretionary items. When we look at the performance 2016 in our e-commerce basket it looks as if the entire industry went into a bubble caused by pandemic.
Today we got more evidence of these negative dynamics as Asos, a big fashion e-commerce business, is cutting its fiscal year revenue and pre-tax profit outlook driven by higher order returns and cost pressures across logistics and supply chains. The pre-tax profit guidance is now £20-60mn down from previously £100-130mn. Revenue growth is lowered to 4-7% excluding Russia down from 11-13%. If the world economy is slipping into a recession then the cut to its revenue outlook might not be enough. Shares are down 26% today dipping below the lows from during the pandemic low in March 2020. The stock is now down 89% from the peak in March 2018.
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