Online fashion retailer Asos has disappointed the City with a slightly worse slowdown in sales than expected.
The company, which issued three profit warnings this year after a warehouse fire and a hit from exchange rates, said September and October had been difficult as it installed a new warehouse system in time for Christmas. In common with other retailers, the warm weather did not help clothing sales.
So total retail sales for the first quarter to the end of November rose by 8% - below forecasts of 9% growth - to £246m. UK sales rose 24% but international sales fell by 2%, mainly due to the strong pound.
The company said the overseas trading conditions were still challenging. But on a positive note, it said it had seen its bigger ever trading week during the last week of November which ended in the Black Friday discount frenzy.
It received £6.3m of insurance proceeds during the quarter, relating to the Barnsley warehouse fire, which it will use to accelerate its investment in international pricing. It has started zonal pricing, so overseas customers will not see hefty price rises as sterling appreciates.
With all that, it said full year profits would be in line with expectations. But the shares have dropped 5% or 122p to £22.57. Oriel issued a reduce recommendation, with analyst Anjli Shah saying:
Challenging conditions at both home and abroad are likely to have led to discounting to stimulate demand and thus explains why retail gross margin has declined around 170 basis points on the prior year.
Although zonal pricing is now going live in Australia and France, it is clear that Asos is playing catch up. After taking into account the £6.3m of insurance proceeds for accelerating investment into international pricing, management expects full year profits to be in line with expectations. In our opinion, this may prove to be more challenging than expected.
Given that consensus already reflected recent downgrades, today’s miss is likely to provide little reassurance. The shares continue to look unattractive to us.
Liberum was also a seller:
During the quarter £6.3m of insurance proceeds were received from the Barnsley fire and this will be used to accelerate investment in International pricing.
Taking this into account, management expects full year profits to be in line with expectations - it is not clear to us whether this would be the case without the proceeds. We forecast 2015 pretax profit of £45.9m (down 2%) versus consensus of £43.9m to £48.2m. Shares trade on 2014 PE of 54 times.
Numis was more positive, with analyst Andrew Wade saying:
We remain confident that Asos has a unique proposition – we can find no compelling example of a scaled profitable online pureplay competitor offering a targeted demographic the combination of a curated selection of third-party edits and a substantial range of fast fashion own-name own-brand product, a leading delivery proposition, and ever-increasing levels of content – and believe that this can support sustainable long term global growth.
