Online retailer Asos confident on full-year target despite sales dipping below growth forecast
Asos was bullish on hitting its downgraded full-year targets today as it revealed double digit sales growth for the three months to the end of February.
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The online retailer saw revenue rise 13 per cent year on year over the quarter, it revealed in a trading update to investors, keeping full-year sales growth guidance at 15 per cent.
Meanwhile the digital fashion store saw its retail gross margin improve by 40bps.
Asos recorded a 14 per cent jump in revenue in the UK compared to the same period in 2018, while in the US “demand far exceeded our expectations”, despite causing a temporary order backlog.
However, while Europe sales grew 12 per cent, its two major markets, France and Germany, “continue to be challenging”.
“Our retail gross margin guidance for the year remains. We will be increasing investment in price and marketing in the second half, particularly in France and Germany,” said chief executive Nick Beighton.
“Given the actions we are taking together with an improving US performance, we believe the group will deliver stronger growth in the second half. Consequently we remain confident that we will meet guidance for the full year."
Asos’s share price plunged 35 per cent in a single day in December after it warned of a “significant deterioration” in trading and issued a profit warning.
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The business slashed 2019’s growth forecast down from between 20 per cent and 25 per cent to the current 15 per cent, adding that its profit margin would halve to two per cent.
Beighton warned at the time that the profit warning was “just a bump in the road”.
Asos’s share price slipped two per cent to 3,147p as investors were not impressed at the slower than expected rate of growth.
Russ Mould, investment director at AJ Bell, warned of tough times for Asos with sales growth below analyst forecasts, saying low margins mean Asos “cannot afford any hiccups”.
“Asos isn’t really doing anything unique versus its rivals,” he added. “For it to win at this game Asos needs its warehouses running near to full capacity and smoothly in order to benefit from economies of scale.”
Hargreaves Lansdown said shareholders’ confidence has weakened with sales lagging behind the revised 15 per cent growth rate.
"The slowing growth seems to be a result of weaker consumer confidence, while increased promotional activity suggests the competition is heating up too,” said senior analyst Laith Khalaf.
“There’s now a lot of pressure on the next six months to bring Asos back up to what is a tepid growth rate by its own high standards.
“There’s still high hopes for growth baked in, so Asos needs to deliver on its targets, or the share price will come under even more pressure.”