ASOS H1 increased sales not enough to offset lower margins

Wednesday, 02 April 2014

ANALYSIS_Online fashion giant ASOS posted a 34 percent increase in sales for the first half of its current fiscal year, to 482 million pounds. However, this leap wasn´t enough to offset the backlash of lower-than-expected profit and margins. Despite the 34 percent jump in sales for the first half of the year,

profit before tax fell 22 percent to 20.1 million pounds after the retailer admitted to substantial investment in its website, warehouses and its China business.

"These investments will accommodate future annual sales of at least 2.5 billion pounds," the company said, further explaining the 68 million pounds they have already invested in the year to date.

"ASOS is not and has never been about the short-term; the scale of the global opportunity remains as exciting as ever and we are investing for the many opportunities ahead," added the company when presenting the figures.

Missed forecast for Q2 whips off fifth of ASOS market values

More than a fifth of its stock market value was wiped off after the retailer's second quarter growth failed to match forecasts and it warned that margins were likely to be impacted this year by investment costs, including in China.

"This increased pace of investment has reduced our profitability in the period, but will deliver significantly increased capacity as well as efficiencies in the longer term," Chief Executive Officer Nick Robertson said in the statement.

Days before reporting its results for the first half of the year, ASOS said retail sales were 26 percent higher year-on-year at 136.7 million pounds in the two months to February 28. However, this fell short of the 32 percent growth expected in the City.

On the wake of the news, analysts downgraded full-year profit forecasts to 64.5 million pounds. Now, circa 70 percent of the year's profits are expected in the second half of the year.

Meanwhile, ASOS reassured the market and insisted it remains on track to achieve annual sales over 1 billion pounds for the first time a year ahead of schedule.

Andrew Wade, retail expert at Numis Securities, said: "Despite this bump in the road, which demonstrates just how difficult it is to build an online operation of such scale, our view on the business is little changed."

"We remain confident that ASOS is a unique proposition, a profitable fast fashion pure play destination, squarely targeting its 20 something market, with a vast global growth opportunity."

Angela González Rodríguez

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