Asos sees annual profit at top end of market expectations

Online fashion retailer Asos said on Wednesday that annual pre-tax profit was set to be towards the top end of market expectations, as it reported a 10% jump in sales for the four months to the end of June, but analysts were largely unimpressed.

Group sales in the four-month period rose to £1.01bn from £919.8m in the same period a year ago, with retail sales up 10% to £983.3m. UK retail sales dipped 1% to £329.2m and US sales edged down 2% to £124.9m, but international sales pushed up 17% to £654.1m.

Asos said it had seen a steady improvement throughout the period, reflecting increasing warehouse capacity and an underlying improvement in demand.

The active customer base rose 16% on the year to 23 million, with particularly strong growth in new international customers.

The retailer said FY20 pre-tax profit is on track to be towards the top end of market expectations despite material incremental Covid-19 costs. As a result, it will now repay the support it received from the UK Government furlough scheme.

Asos said total sales growth has improved materially since Covid lockdown measures were introduced in March.

"As we said at HY results, sales were circa 20 to 25% lower when those measures were first introduced.We are therefore pleased to have delivered 10% sales growth for the period overall. This performance was supported by good new customer acquisition, strong growth in 'lockdown' product categories (casualwear, activewear, face and body), an overall improvement in underlying demand and beneficial returns behaviours showing more deliberate purchasing.

"Our underlying profitability and cash generation through the period was strong and reflective of the operational rigour with which we managed the business through unprecedented levels of uncertainty. This rigour to managing the business, including adjusting our intake profile, means that we do not foresee a material inventory risk or write off requirement relating to Covid-19."

The company’s trading statement came out as it emerged that Asos had axed contracts with several clothing suppliers after uncovering poor working conditions. According to a 2018 report leaked to The Telegraph, the company's inspectors found major ethical breaches at almost a quarter of suppliers visited in 16 countries, including seven sites in the UK.

At 0820 BST, the shares were up 2.1% at 3,443.00p

Independent retail analyst Nick Bubb said: "After all the focus on the supply chain issues of its rival Boohoo, it is a relief to not have to read about ethical sourcing etc. On the other hand, trading has not exactly been going ballistic, with sales only up 9% in constant currency terms for the period, (with the UK down 1%)."

Broker Liberum said this was a "very weak" update, pointing to the fact that sales actually fell in the UK and US.

"The P3 underperformance versus peers highlights the challenges of wholesale model where lead times are long and capital is tied up in inventory makes it difficult to quickly change the product mix, as seen in the UK and US whereas EU and ROW have seen lockdown measures ease earlier.

"We remain sellers due to concerns of heightened promotions as we head into Q4, and considering the strength of the shares the past few months, we see this reversing somewhat."

Shore Capital analysts Greg Lawless and Clive Black said: "At the time of the interims back in April (for the six months to end February) group revenues had grown 20% year-on-year (yoy), so the Q3 update shows a slowdown over the last four months, particularly in the UK and in the US reflecting the impact from product mix shift from the Covid-19 lockdown measures.

"The statement highlights a steady improvement during the period, so it will be interesting to understand the exit rate by geography from the quarter."