Asos plans to boost investment in its remaining overseas businesses after closing its China operations, the online fashion retailer said as it reported an 18% rise in half year profits.
The company will incur closure costs of £10m in China, but the £2m it previously planned to spend in the country will be redeployed in other markets. Apart from the UK, Asos sees its main markets as France, Germany and the US.
In the US it will receive a £6m to £8m boost in the second half from changes in import duty thresholds in March, and this will be invested in its American business.
First half profits rose 18% to a slightly better than expected £21.1m, despite increasing competition from the likes of Boohoo and improved online offerings from established store groups. UK sales rose by 25% and international revenues were up 18%, with investment in its technology and logistics helping to boost business. Chief executive Nick Beighton said:
We are on track to achieve our previously stated sales and margin guidance for the full year.
The news has pushed the company’s shares more than 6% higher to £36.22. Analysts at HSBC said:
An increased focus on mobile is the key driver of top-line growth with mobile now accounting for over 60% of all Asos web traffic. Active customers were up 17% to 10.9m.
At Numis, Andrew Wade said:
Proposition improvements (including free returns for all EU countries) continue to provide visible growth drivers, supported by ‘windfalls’ from the China closure and US tax changes. We leave our estimates unchanged, but note a marked improvement in quality, and reiterate our buy stance.
Peel Hunt’s John Stevenson also has a buy recommendation, saying:
First half numbers were marginally ahead of our forecasts. Future guidance, adjusting for the China closure, is broadly unchanged. There is enough in here for us to push through an underlying upgrade of around 5%, but the excitement is more about momentum in the consumer proposition and new investment opportunities. US duty changes will create a short-term annualised benefit of around £15m to invest in pricing, delivery and product.
