Online clothing retailer Asos has reported that profits have fallen by a tenth during the first half. This comes after three profit warnings for the company in 2014, although Asos’s chief executive, Nick Robertson, has said he is confident in the outlook for the second half and believes full-year profit margin will be in line with expectations.
City analysts had the following to say:
Andrew Wade, Numis
We leave our forecasts unchanged, expecting sales growth to accelerate and gross margin to stabilise before returning to positive territory as the clearance activity and fire are annualised. However, given the positive reaction Asos has seen to the price investments made and the clear benefits to come in the second half from progress on warehousing, we see scope for upside which we would expect to be reinvested in the customer proposition, through pricing and delivery enhancements. While still early days in Asos’s two-year repricing journey, and despite a strong recent run in the shares, we retain our positive stance, encouraged by the momentum being built and, fundamentally, Asos’s unique customer proposition.
Freddie George, Cantor Fitzgerald
The company is now of a meaningful size with sales forecast at over £1.1bn in 2015, relatively strong cashflow and a state-of-the-art logistics infrastructure. We continue to have question marks, however, over the robustness of the model and believe the company will have to continue to discount and offer free delivery charges and returns to maintain sales momentum. We are also concerned about the valuation. After two profit warnings over the last year, forecasts for 2015 and 2016 have broadly halved so in relative terms the stock is almost back to being at an all-time high in terms of earnings multiples. We are retaining our sell recommendation and target price of 3,000p.
Keith Bowman, Hargreaves Lansdown
In all, Asos remains an enticing but highly volatile and therefore higher risk investment. Ongoing global expansion, aided by current group investment, continues to be weighed against the now established difficulty of correctly valuing internet growth stocks. For now, and with sales growing potentially at the expense of profits, analyst consensus opinion currently points towards a hold.
Mark Photiades, Canaccord Genuity
Today’s results were better than expectations. Management comments that it expects 2015 pretax profit to be in line with market expectations and we therefore do not expect any material changes today as further investment in price is expected in the second half. We continue to expect sales growth rates for the business to improve as the year progresses, as initiatives gain further traction and comparatives ease. Whilst the size of the longer-term prize remains significant and the route map to the next staging post of £2.5bn of sales looks achievable, execution of the plan remains key. We are encouraged that the anticipated sales progression is being achieved as hoped.
Alistair Davies, Investec
Interim results are ahead of expectations due to disciplined marketing spend and improved performance in delivery and third party income. Management has reaffirmed guidance for the year ahead and sales expectations are likely to be towards the upper end of the range, with second quarter trading momentum giving confidence this can be achieved (at least). Reflecting the positive momentum, we raise our forecasts by 2% and 5% this year and next. Long-term we continue to believe the shares are overvalued.
