ASOS in ‘wait and see’ mode as pandemic boom comes to an end


ASOS PLC (LON:ASC) received a lukewarm market reaction after posting some impressive interim results.

A 275% jump in profits wasn’t enough to quell investor worries over the pandemic boom coming to an end.

READ: ASOS posts record interims, boosts investment to keep customers after lockdowns

The AIM-listed retailer admitted that some of its customers will move back to stores as restrictions are eased across its markets, while it remains mindful of the widespread economic uncertainty, particularly amid its core 20-something customers.

In fact, group sales surged 25% to £1.9bn driven by growth across its markets but Spain declined because of the financial hit on young people and aggressive local competition.

The market is fierce everywhere, analysts at Liberum noted, with Zalando and boohoo Group PLC (LON:BOO) recording higher revenue growth throughout the pandemic.

“We continue to prefer brands and platform models over Asos’s wholesale model where lead times are long and capital is tied up in inventory making it difficult to quickly change the product mix. Even though our forecasts give them the benefit of the doubt, the outlook is clearly clouded,” they commented.

On the bright side, ASOS expects online penetration to remain structurally higher than pre-pandemic levels and to benefit from the return of demand for occasionwear.

The key question is how many of its 24.9mln active customers will remain faithful to the platform, after 2.6mln new users joined over the past year.

“The tailwind provided by Covid is expected to unwind as the hospitality and tourism sectors reopen, and ASOS’ customers have more to do with their time than adding yet another loungewear set to their online baskets,” said Sophie Lund-Yates, analyst at Hargreaves Lansdown.

“It’s encouraging to see ASOS resonating well with its demographic and continuing to take online share in key markets. Competition out there is fierce, and it’s working hard to remain flavour of the month with the recent acquisitions of Topshop assets.”

Chief executive Nick Beighton noted in the results that the Arcadia brands prompted “impressive early customer engagement” during a “swift integration”.

The company bought Topshop, Topman, Miss Selfridge and HIIT earlier this year with the rationale that they would resonate well with the customer base, as they used to be part of the roster anyway.

The acquisition seems to have gone well and cheaper than expected, with one-off costs halving to £10mln compared to initial estimates.

“The deal didn’t include the physical shops themselves but there is speculation Topshop’s flagship store on Oxford Street might be reopened – which would give ASOS a physical space to showcase its brands,” noted AJ Bell financial analyst Danni Hewson.

However, margins remain at stake as the easing of restrictions may mean more returns, as people will feel more confident to go to the post office.

The retailer also said freight rates expected to remain at very elevated levels for the remainder of the financial year.

“Operating margins came too close to the ground for comfort in recent years, and if return rates start to spike again, we could see some of the progress in margins come undone. Provided there aren’t any operational slip ups to boot, this won’t be the end of the world, but the comfortable margin position we’re looking at now should be taken with pinch of salt,” Lund-Yates continued.

What’s more, costs may be further pushed up by an investment boost to support global growth and keep pricing competitive.

“ASOS has a great proposition and good growth opportunities abroad ,” Lund-Yates concluded, “the medium term will be governed by the degree to which shopping habits change as lockdowns ease, and the extent of any economic damage to its core 20-something customer base.”

Shares were trading 1% lower at 5,708.98p on Thursday at midday.


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