Asos' profit takes a hit as retailer announces £2.5bn sales goal

 
Harriet Green
Follow Harriet

Asos has announced a 22 per cent fall in profit before tax to £20.1m the six months to February, as heavy investment in customer proposition, infrastructure, personnel and capacity takes its toll.

But expansion costs were expected by and for the fashion retailer, and Numis has described it as “loaded with investment for growth” this morning.

In the company's statement, chief executive Nick Robertson said:

This increased pace of investment has reduced our profitability in the period, but will deliver significantly increased capacity as well as efficiencies in the longer term. Asos is not and has never been about the short-term; the scale of the global opportunity remains as exciting as ever and we are investing for the many opportunities ahead.

Retail sales rose 34 per cent to £472m. International sales grew 35 per cent to £290m, with UK sales up 32 per cent to £182m.

Asos says it now has 8.2m active users - 36 per cent more than it had a year earlier.

Significantly, Asos says it plans to hit £2.5bn of sales at the so-called “next staging post” of its journey.

We have accelerated our infrastructural investment in warehousing and technology to create capacity for sales of up to £2.5bn per annum, with some associated short-term incremental costs, as well as continuing to invest in our China start-up operation and in our overall customer proposition.

Reaction

The announcement mid-March of the slowdown in sales growth had caused alarm among investors, but Numis says of the next “staging post”: “given the high quality and unique nature of ASOS’ offer, we have little doubt this will be achieved.”

Earlier in the week, Barclays said shares in Asos have the potential to reach £100 each - nearly double what they are now.

Numis has a target price of 7500p per share, reiterating its buy rating: “We leave our forecasts unchanged and remain confident in the ASOS proposition.”

Like Barclays, it sees the recent pull-back as an “excellent buying opportunity”.

Cantor Fitzgerald's less confident, though. It's downgraded its 2014 pre-tax profit forecast from £64m to £61m and says it's making similar reductions for subsequent years.

The investment bank says it's "concerned" that the ranges in womenwear have been "expanded beyond the levels management can adequately control." It's because of that, it says, that Asos has seen "significantly higher levels of markdown activity in womenswear and higher returns over the last two months."

As the results are digested, shares have so far gained over two per cent.

Source: Google