ASOS back in fashion after record Black Friday
2019 was a tough year for online retailer ASOS, following a profit warning in December 2018. Fast forward to the latest festive season, though, and things are very different.
The group announced a record Black Friday helped revenues rise 20 per cent to £1.1billion in the four months to December 31.
It’s not just festive trading that’s come a long way. Poor execution of international expansion led to a disappointing performance last year.
But these issues look to have been put to bed, too. Last quarter, there was strong growth across all regions, helped by improvements in product choice, stock availability and capacity. This looks more positive, because international markets are key to future growth.
At the moment, international sales account for 62 per cent of retail sales, from 69 per cent of total active customers.
Making use of new distribution facilities should boost operating margins (just 1 per cent currently), as sales rattle through the warehouses.
Of course, growth in the EU and US cuts both ways though. If sales are lack-lustre, international expansion just adds additional fixed costs. Good progress is being made, but the coast isn’t totally clear.
The sector is highly competitive, leading ASOS to discount, and higher marketing spend meant gross margins dipped 1.7 percentage points last quarter. Costs associated with free returns for customers shouldn’t be overlooked.
Those with a positive outlook focus on the potential for the operating model, which doesn’t include the costs of bricks and mortar retailers, to boost margins and profits.
Those hopes support a price to earnings ratio of 47.3 – higher than most other retailers. The focus on rapid growth means there’s no dividend on offer.
Overall, ASOS is taking a step in the right direction.
With competitive pressures lingering, we’d like to see a longer run of positive news, but it is hard to dispute the group’s progress.
This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.