Online fashion retailer ASOS (ASC:AIM) strutted in with forecast-beating full-year results on Wednesday that confirmed continuing positive momentum in the business.
Yet the shares cheapened 5.7% to £50.72 on profit-taking after a strong run as ASOS issued a cautious outlook statement and warned that ‘life for our 20-something customers is unlikely to return to normal for quite some time’.
FASHIONING ROBUST GROWTH
Group revenues grew 19% to over £3.26 billion in the financial year to 31 August, with ASOS’ sales rising in the UK and internationally, while pre-tax profits rose by 329% to £142.1 million, comfortably ahead of the £131 million called for by consensus.
The web-based fashion purveyor also closed the year with net cash of £407.5 million thanks to strong cash conversion and a ‘proactive’ £239.4 million capital raise at the height of the Covid crisis in April.
REMAINING CAUTIOUS
ASOS’ retail gross margin actually fell by 150 basis points to 45.9% due to increased freight and duty costs in its US warehouse, price cuts during lockdown and also changes in the product mix. During the pandemic, consumer demand shifted away from occasion wear into more casual, lockdown-relevant products.
The retailer has made a ‘solid’ start to the new financial year, insists it is well-positioned for the Black Friday and Christmas peak period and the year ahead and expects to ‘continue to grow our profitability whilst sustaining positive cash generation’.
Nevertheless, management remains cautious on the customer demand outlook given the disruption the coronavirus pandemic is causing to the lifestyles and economic prospects of its fashion-loving 20-something customer demographic.
The challenge appears especially acute in the US, where ASOS’ second half performance slowed and the 20-something consumer hasn’t benefited from the same financial support measures as European consumers. ASOS added that ‘the degree to which consumer lifestyles have normalised also remains behind Europe’.
‘We’ve driven efficiency and have emerged a stronger, more resilient and agile business whilst delivering strong profit and cash generation,’ commented chief executive Nick Beighton.
‘Whilst life for our 20-something customers is unlikely to return to normal for quite some time, ASOS will continue to engage, respond and adapt as one of the few truly global leaders in online fashion retail.’
THE BROKERS’ TAKE
Shore Capital reiterated its ‘hold’ rating on ASOS, which has ‘trading momentum and an opportunity to leverage its global infrastructure’, though the broker considers that ‘given the share price run, high valuation metrics and an uncertain consumer outlook, the shares look up with events’.
Liberum Capital is also sticking with its ‘hold’ rating amid a ‘clearly clouded’ outlook. The broker pointed out ASOS is ‘starting to get back to the territory it commanded in 2018 before its string of profit warnings. While the group has made good progress on cost reduction and has clearly benefited from Covid-19 with lower returns in full year 2020, it remains unclear how much will “stick” in full year 2021 and beyond’.
