Listen to this article
Shares in Asos dropped more than 6 per cent on Tuesday morning despite the company reporting what analysts described as “exceptional” sales growth, as investors were left unimpressed by declining margins at the online fashion retailer.
The company reported better than expected revenues for the six months to February 28, and strong growth in overseas sales led it to increase its full-year sales guidance for the second time this year.
Richard Chamberlain at RBC Capital Markets said the company had produced a “very strong top-line performance …particularly when compared with Next’s recent online growth and outlook comments”.
He added, however, that “once again it shows how difficult it is to achieve both sales and margin higher than consensus expectations”.
Asos’ gross margin fell by 60 basis points (0.6 percentage points) compared to the same period last year, to 48.9 per cent, as the company cut prices in continental Europe and customers took advantage of its free shipping options at the expense of paid-for deliveries.
At publication time, shares in AIM’s largest company were down 6.3 per cent, to £56.01.
However, Mr Chamberlain remained positive on the group’s results overall, arguing that its medium-term guidance is “conservative on account of recent and upcoming proposition enhancements, particularly in the US and Europe”.
George Mensah, analyst at Shore Capital, also argued that the reduction in margins was in line with guidance given at the start of Asos’ financial year, and said overall “we believe this is a business well positioned to take market share”.