ASOS surges on solid full-year numbers

ASOS shares surged on Wednesday as the online fashion retailer posted a jump in full-year profit and revenue and maintained its outlook for the year despite heavy investment.

In the year to the end of August, pre-tax profit rose 28% to £102m on revenues of £2.42bn, up 26% on the previous year. Analysts had pencilled in pre-tax profit of £100.3m.

The company saw strong growth in the UK, where sales were up 23% to £861.3m and in its international territories, where sales grew 27% to 31.49bn. Meanwhile, active customers in the UK were up 15%, while average purchase frequency was 10% higher.

Chief executive officer Nick Beighton said: "This has been another year of substantial progress for ASOS. We delivered 26% sales growth and 28% profit growth whilst investing heavily in the long term potential of the business. Our reported profit increase was achieved despite bearing material transition costs due to our investment programme. All our financial and customer key metrics have shown positive growth.

"ASOS is moving fast and is as differentiated as ever. The potential for our business is huge and we remain focussed on building ASOS into the world's number one destination for fashion loving twentysomethings."

At 1025 BST, the shares were up 15% to 5,732p.

Russ Mould, investment director at AJ Bell, said the fact that ASOS has not only met financial expectations but also maintained future earnings guidance is good enough to win back the market’s favour. He added that the results are a welcome reminder that its UK operations are also firing on all cylinders with 23% sales growth, "an impressive result when considering the fragile market conditions".

George Salmon, equity analyst at Hargreaves Lansdown, said: "There’s been a few niggling worries around the ASOS growth story recently, but these results should put them to bed.

"ASOS has delivered strong growth despite a weak UK consumer environment, while its performance in Europe makes a mockery of worries it’s be impacted by the same issues that caused a nasty profit warning at Zalando.

"Another notable positive is the fact the group hasn’t exceeded its investment budget. That’ll be a relief for investors as, despite the top line whirring, ASOS hasn’t always had the strongest grip on expansion costs."

Richard Hunter, head of markets at Interactive Investor, said ASOS was a "breath of fresh air" in the beleaguered retail sector and that the increase in full-year profit and revenue appears to justify the substantial recent investment the company has made.

"Today’s results have proven largely reassuring for investors, and the early share price reaction partly reverses what has been a disappointing recent performance, with the shares having fallen 12% over the last year, as compared to a 4.4% dip for the wider AIM 50 index, and a hefty decline of 18% in the last three months alone," said Hunter.

He said of concern is that ASOS will need to maintain this "breakneck" speed of growth to continue justifying its lofty valuation, as evidenced in the July update when the shares were hit after slightly weaker-than-expected sales.

"However, its ongoing investment in the business and planned international further expansion means there is much to go for. Being an aggressive growth stock means that surplus cash is being ploughed back into the business rather than being paid out as a dividend, which hitherto has been a winning strategy," Hunter said.