Shares in Asos, the online fashion retailer, rose as much as 15 per cent on Wednesday after the company met its downgraded forecasts for full-year profits and reiterated its growth credentials.
Pre-tax profit for the year to August 31 was £102m, up from £80m last year. Revenue rose 26 per cent to £2.4bn, even though chief executive Nick Beighton acknowledged that the company could have reacted quicker to the unusually hot northern hemisphere summer. German rival Zalando recently warned on profits because of the summer, as did the UK’s Superdry.
Mr Beighton reiterated the group’s emphasis on growth, saying that the medium-term target of £4bn in sales was certainly not an end point. “Investors own us for growth. UK online penetration in fashion is 24 per cent. It’s forecast to rise to 32 per cent by 2023. Why wouldn’t we keep investing to capture that growth?” he said, pointing out that the company’s market share in Europe and the US was significantly below its UK level. “You can easily see how Asos could become a £6bn [in sales] company.”
John Stevenson, an analyst at Peel Hunt, said the results were “outstanding” and pointed out that Asos absorbed many costs at the operating level that other companies would treat as exceptional. These included £8.9m of employee stock option expenses and £25m spent transferring to new US and European distribution hubs.
The shares have endured a tricky year as investors have grown more cautious about the level of spending needed to sustain its growth rates. Asos is spending up to £250m a year on new warehouses and systems that would support £4bn a year of sales and reiterated that it would see cash outflows as a result. Free cash flow was negative £42m in the year under review.
Mr Beighton added that the company was particularly pleased with the October launch of Collusion, described as a “gender fluid and affordable label” for teenage customers. “This was the fourth best-selling brand in its first week, out of 850 brands on the site,” he said.
He played down the idea that Collusion might further cannibalise sales of Asos’s own-label merchandise. These account for about two-fifths of total sales, down from around half in 2012 as the company has introduced more third-party brands.
“The next best offer is only ever a thumb-swipe away for today’s twentysomethings,” he said. “If product teams complain to me that some new brand is cannibalising their sales, then I tell them they need to improve.”
Analysts at Liberum said the company’s business model was highly accretive. “Asos should be investing as much as possible to drive sales growth and share in all the markets it operates,” they said.
Asos continues to search for a new finance director, more than six months after Helen Ashton signalled her departure.
“The search for a new CFO is progressing well and we would hope to make an announcement shortly. The strength and depth of our finance team has enabled the business to operate seamlessly in the interim,” the company said. Mr Beighton was Ms Ashton’s predecessor as CFO.
Adam Crozier will become chairman at the end of November, replacing Brian McBride.
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