Asos beats forecasts but investment plans lead to profit taking

In a strong finish to the year, online fashion retailer Asos reported a bigger full year profit than the market expected and announced it would accelerate its growth investment plans.

Revenues in the year to 31 August of £1.45bn and retail sales of £1.40bn were both up 26% on the previous year and beat analyst forecasts thanks to fourth quarter retail sales growth of 33%, up from the 25% in the previous nine months.

Sales momentum accelerated the fastest in the US, which management said followed its decision to invest in both price and proposition improvements, using the resources freed up from its exit from China in May.

Although the sales mix benefitted from more full price items this year, the price investments in the US, Europe and RoW saw gross retail margin decrease by 30 basis points to 48.5%.

Nevertheless, underlying profit before tax rose 37% to £63.7m, beating the consensus of £62.3m, with earnings per share from continuing operations up 42% to 61.8p.

Taking account of the exit from its Chinese operations, which incurred an operating loss before tax of £3.6m and one-off exceptional closure costs before tax of £6.5m, EPS fell 34% to 29.3p.

Asos had £173.3m of cash in the bank, up 45% on a year ago.

"Given the increasing momentum within the business, we have decided to accelerate investment in both logistics and technology capabilities to ensure we capture the growth opportunities available to us," the company said, guiding to capital expenditure of £120-140m in the new financial year up from £87m.

This included technology, such as new systems, finance, and global fulfilment, a head office refurbishment, and better logistics at Barnsley and its Eurohub 2 warehouse.

Growth in sales is expected to remain in the previously guided range of 20-25%, with margins remaining broadly stable as it reinvests.

Shares in Asos, which on Monday had risen to their highest point in two and half years, fell 5.7% to 5,027p by 0930 BST on Tuesday.