ASOS slumps as interim profit misses expectations, capex bumped up

ASOS was under pressure on Wednesday despite posting a 10% jump in first-half pre-tax profit, as the online fashion retailer's numbers were a little light and it announced an increase in capital expenditure to facilitate additional distribution and logistics facilities.

In the six months to 28 February, pre-tax profit rose to £29.9m from £27.3m in the same period a year ago, as revenue pushed up 25% to £1.16bn. Analysts had been expecting pre-tax profit of £30.8m.

Retail sales were up 26% to £1.13bn, with retail sales in the UK 22% higher at £414.5m and international retail sales up 28% to £716.8m.

Chief executive officer Nick Beighton said: "These results show strong trading at the same time as we are making substantial investment in our future. Our customer engagement is going from strength to strength and we've achieved more than a billion site visits for the first time.

"Alongside our investment in our people and our technology, we are accelerating investment in our distribution and logistics, laying the foundation for £4bn of net sales, a further step in building ASOS into the world's number one destination for fashion loving 20-somethings."

The company said there was no change to its FY18 reported sales or earnings before interest and tax guidance, but capex guidance was upped to between £230m and £250m for this year and the next. The company, which invested just over £95m of capex in the first half, had previously guided to £220m for the year.

ASOS said it expects to be free cash flow negative this year, extending into the next financial year, returning to free cash flow positive in FY2020.

At 0910 BST, the shares were down 9% to 6,393.84p.

Canaccord Genuity, which has been a consistent seller of ASOS based on the thesis that the cost of growth will continue to come in ahead of market expectations making the valuation hard to justify, said these results lend further support to its thesis.

However, Shore Capital said the results are "solid" and highlight continued momentum across all geographic regions and key performance indicators moving forward.

"The bears will highlight the additional capital expenditure in FY18 and FY19 but there is no change to either sales or margin guidance in either the short or medium term. ASOS continues to win from the structural channel shift online and is laying the foundations for £4bn of sales over the medium term," it said, as it reiterated its 'buy' rating on the stock.

Meanwhile, Numis, which also rates the stock at 'buy', said that while cash forecasts have been impacted by a further capex acceleration and working capital effects, "ASOS’ investments are supporting and driving a clear, long-term, profitable growth opportunity".