Asos posts rise in sales but cautions over Covid uncertainty

Asos reported a rise in sales for the four months to 30 June but cautioned that trading at the end of the period had been more muted amid Covid uncertainty, sending shares in the online fashion retailer lower.

Total group revenue in the four months rose 21% to £1.29bn, with total retail sales up 20% to £1.24bn. Retail sales in the UK rose 36% to £526.4m, while EU sales were up 15% to £388.3m. In the US, retail sales grew 20% to £144.8m, while international sales were 11% higher at £715.7m. In the rest of the world, sales fell 3% to £182.6m.

The retailer said its active customer base increased by 1.2m to 26.1m.

Asos hailed a "strong" performance in the UK, with increased promotional activity to capture the available demand for its product offer, despite the re-opening of physical stores early in the period. However, it also noted that the final weeks of June saw a softening due to Covid uncertainty and unseasonal weather.

Growth in the EU was "good," the retailer said, underpinned by particularly pleasing growth in Germany, despite various levels of Covid restrictions remaining in place for much of the period. In Southern Europe, meanwhile, the performance was "more challenging", with tourism-related economic pressures disproportionately impacting the prospects of 20-somethings.

The company said trading in the last three weeks of the period was more muted, as continued Covid uncertainty and inclement weather, particularly in the UK, dented demand. It also warned that global supply chain pressures continue, driven by global freight capacity shortages and delivery delays coming out of key areas of supply.

"We anticipate a measure of volatility to continue in the near term, given the rapidly evolving Covid situation worldwide. As a result, we expect our underlying P4 growth rate to be broadly in line with the prior year comparable period. We expect overall full year adjusted profit before tax to be in line with our expectations," it said.

At 0900 BST, the shares were down 10.3% at 4,224p.

Richard Hunter, head of markets at Interactive Investor, said: "Despite the more profitable lines of occasion wear making something of a return in recent weeks, an immediate return to previous levels of sales seems unlikely. At the same time, the reopening of physical stores reintroduces more competition and FX headwinds have worked against margins in the period, as have additional freight costs resulting from disruptions to the supply chain in key areas.

"In addition, the ramifications of the withdrawal of government assistance have yet to be seen, especially with regard to unemployment and consumer confidence, both of which could signal particular red flags for its target audience."

Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, said: "Bad weather and ongoing uncertainty mean ASOS' UK sales trends weakened towards the end of June. This is to be expected - if there’s any doubt about when so-called freedom-day is going to happen, its young, core customers will hold off on buying party dresses. Heavy rain means less socialising too. With restrictions set to ease in the coming days, we could see increased demand as people gear up to hit bars and clubs once more.

"There is a lot resting on sales regaining some of the lost ground, with the market clearly disappointed in the uncertainty pointed out in Asos’ trading statement. Next quarter will be crucial because it will give a better indication of the sales pace Asos can achieve in more normal times.

"By that point there should be even more clarity on social activity, and a clearer view of the shape of Asos’ future should come into focus. It’s possible that as customers become busier and not confined to their sofas, they’ll be scrolling the Asos app less frequently, and therefore purchase less. What these different dynamics will mean for the numbers over the medium term is yet to be seen.

"In some respects it looks like normality is already returning among Asos customers though, with returns rates climbing back to pre-pandemic levels. That’s not the best news, although it’s not unexpected. It will likely mean some dents to operating margins in the near term."