Asos profits bang in-line with forecasts, reiterates guidance for full-year sales

Asos saw its profits plunge during the first half of the year on the back of high levels of discounting during a period chracterised by low confidence, with matters made worse by some self-inflicted wounds.

For the six months to 28 February, the company confirmed that profits before tax were down by 87% at £4.0m on the back of a 14% jump in total group revenues to £1.312bn.

Sales in the UK market were strongest, rising by 16%, while those from overseas markets were up by 12%, with a tailwind from changes in exchange rates adding three percentage points.

Gross margins on the other hand shrank by 50 basis points to 48.7%, although the declines seen in its average selling prices eased from -6% over the first quarter to -1% in the second as promotions eased.

Net debt was sharply higher, rising to £37.9m, versus the net cash position of £37.7m that the company enjoyed at the same point of the year twelve months ago.

As expected by analysts at Numis, the online fashion retailer stuck to guidance for full-year earnings before interest and tax to grow by 15% and for sales to be up by about 2%.

The company also reiterated its projection for capital expenditures in fiscal year 2019 to be unchanged at £200m, declining to £150m in the following year (UBS: £180m).

Year-end 2019 net debt meanwhile was pegged at about £50m with management predicting a return to positive free cash flow over the course of fiscal year 2020.

Commenting on the company's financial outlook, group chief Nick Beighton said management was "confident" of an improved performance in the back half of 2019 and had "increased confidence" in it ability to capture market share, while restoring profitability and increasing its free cash flow generation.

Calling attention to the size of the global online fashion market, which he put at north of £220bn, Beighton said: "We believe that ultimately there will only be a handful of companies with truly global scale in this market. We are determined that ASOS will be one of them."

For their part, analysts at UBS noted the increased disclosure on the part of Asos into its sales mix, with Asos's Design mix down by 3% on the year to 36%, with the company claiming to have already taken remedial action in a number of areas.

As of 0852 BST, shares of Asos were up by 5.33% at 3,318p.