COMMENT
Dangerous Seasonal Businesses

Spare a thought for ASOS (LSE: ASC) whose shares were suspended at the company's request on Monday. The online fashion retailer said its warehouse at Hemel Hempstead has been badly damaged by an explosion at a nearby fuel depot early Sunday morning. According to fire fighters, the inferno at Buncefield fuel depot is the worst fire they have ever dealt with.

The blaze couldn't have happen at a worse time for ASOS, which generates over three-quarters of its revenues between October and March. In fact, profits during the busy Christmas trading period account for almost 90% of annual group earnings. Thankfully, ASOS said it is fully insured both for stock loss and business interruptions. Nevertheless, the disaster highlights one of the perils of investing in highly seasonal businesses.

Consider Richmond Foods (LSE: RFD), which is the UK's largest ice cream manufacturer. Imagine what would happen if lolly sales failed to live up to expectations in the crucial summer months. The company generates over two-thirds of its annual revenues between April and September. But of greater significance is the summer period accounts for 87% of annual profits. Consequently, Richmond may only ever be one wet summer away from a profit warning.

Clinton Cards (LSE: CC.) is another highly seasonal business. It generates almost 90% of its profits between September and February. Woolworths (LSE: WLW) needs its Yuletide boost too. Around 60% of annual sales and three-quarters of full-year profits are generated between August and January.

But it's not just high street retailers that experience seasonal fluctuations. Wyevale Garden Centres (LSE: WGC) generates almost 70% of its profits in the spring and early summer. And IT companies can be prone to seasonal effects also. Take RM (LSE: RM.), which supplies computers to schools. It generates almost all of its profits from April to September, so the six months from October to March is often loss-making. This is not entirely surprising given that RM's business reflects the buying patterns by schools.

In truth, most businesses experience seasonal trading patterns. For instance, soft drinks manufacturer Nichols (LSE: NICL) loves long, hot summers, and estate agent Countrywide (LSE: CWD) yearns for favourable conditions in spring to draw out eager homebuyers. However, the hidden danger with highly seasonal businesses is that it may only take one ill-timed hiccup to bring on long-term indigestion from which they may never quite recover.

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