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Sales up but profits down at Asos, company upbeat after logistics nightmare

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today Oct 16, 2019
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Asos has been seeing greater challenges in its drive for growth in recent periods so its results for the year to August 31 were closely watched on Wednesday. The company continued to turn in the kind of sales growth figures many rivals would envy, but because those figures lagged the explosive growth it achieved in previous years, they didn't look so hot. And plummeting profits also detracted from the Asos success story, although the fact that it seems to be getting back on track sent its shares up sharply in early Wednesday trading.


Asos



Group revenues rose ’only’ 13% – or 12% currency-neutral (CN) – to £2.733bn, and retail sales rose by the same percentages to £2.657bn. UK retail sales were up 15% to £993.4m and international was up 11% (10% CN) to £1.664bn. Within that, retail sales to the EU rose 12%, the US 9%, and the rest of the world (ROW) 12%.

There was bad news on margins with the retail gross margin losing 250bps to 47.4% and, after substantial transition and restructuring costs, pre-tax profit plummeted 68% to £33.1m. Its final profit figure was £24.6m, down from £82.4m.

Clearly, as the business reaches a more mature level and as it invests in its expansion plans, spectacular growth is harder to come by. Yet it continues to be one of the most important fashion e-tailers globally and the total number of orders placed rose a healthy 14% last year to 72.3m.

Can we expect more muted results in future as well? Probably. But its investments do appear to be paying off and it said it had a solid finish to the year with Q4 sales growth of 15% and site visits up 20%. The company clearly had issues in multiple regions earlier in the period but the story of its financial year was one of improvements virtually across-the-board by the end of the period.

LOGISTICS ISSUES


This was helped by the major Euro Hub automation and mechanisation issues that had severely dented its ability to fulfil orders having been resolved, while “product rebalancing and stock build” in the US was “progressing well”.

Cautiously upbeat CEO Nick Beighton said the latest financial year was “a pivotal period where we have invested significantly and enhanced our global platform capability to drive our future growth. Regrettably this was more disruptive than we originally anticipated. However, we have made substantial progress in resolving [the issues]. There remains lots of work to be done [but] we are now in a more positive position to start the new financial year.”

The company is in a good position overall with 60% of its revenue now coming from International operations. Its huge international potential can be seen from the fact that Sweden and the Netherlands were “standout performers following the release of their local language websites,” and it has just launched local sites in Denmark and Poland too. And despite US logistics issues, it has “significant headroom for growth” while American shoppers have “reacted well” to its instalment payment deal with Klarna that “quickly established a healthy share of payment mix”.

The company is ambitious to get back to more spectacular growth and in order to achieve its goals for FY20, it has restructured its executive team and will be adding new roles including a Chief Growth, Commercial, People and Strategy Officers to sit alongside its CEO, CFO, CIO and COO.

PRODUCT FOCUS

It has also been working hard on its product offer and said its  most recent launch, Collusion, has been a “great success”. This has “firmly established itself within our top 10 brands, resonating well with younger customers and achieving a strong new customer mix. Collusion was searched for on-site almost 2m times and we have sold over 150,000 brand carrying items.”

It also said it has continued to see good growth in Activewear, including Asos 4505. Sales “surpassed our expectations and we have significant growth plans in place for next season”. Meanwhile its Asos Design own-brand offer has also been boosted and increased to 40% of the mix in Q4, up from 36% in H1 and growing well year-on-year. 

Within womenswear, it said performance in dresses was strong with animal print, broderie and satin styles “really resonating”. Its customer segment targeted edits, notably Asos Design Luxe and its Modest Fashion edit, did “really well”. It launched its first Modest Fashion edit in April. The collection “landed well, particularly in UK, Germany and US, with strong sell-through and Asos Design representing over 60% of the mix”.

In menswear, growth of Asos Design accelerated to double-digits in H2 from 1% in H1. It saw success with trends in neon and utility including the return of the cargo pant. Performance in shirts was strong in H2 and it has “begun to see an improving trajectory in tailoring which had been softer earlier in the year”.

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