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Online fashion firm ASOS (LON:ASC) said its international sales growth picked up in the financial year just ended as price cuts began to take effect.
Full year earnings were slightly ahead of expectations, even though sales were not, the company revealed.
The AIM-listed retail glamour stock has seen its star wane a bit of late as it has had to cut prices, or “invest in prices” in the industry jargon, to keep its growth rate at sexy levels.
The company said it has started the new financial year well and is geared up for the peak selling season.
“We intend to make further investments in our prices where required during the year, as well as continuing to invest in our global logistics infrastructure and technology,” the company said.
ASOS's new chief executive, Nick Beighton, said the company expects sales growth for the current financial year will be around 20%, compared to 18% for the year just gone.
Talking of which … underlying profit before tax in the year to the end of August 2015 edged up to £47.52mln from £46.90mln the year before, a smidgen above City forecasts of £46.56mln.
Earnings per share of 44.4p were barely changed from 44.5p the year before but topped the consensus forecast of 43.86p.
Group sales passed the billion pounds mark, rising to £1.15bn from £975.47mln last year, though analysts had pencilled in a figure of £1.16bn this time round.
International sales growth, which has been a concern of investors, was 11% year-on-year, or 17% on a constant currency basis, and accelerated as the year progressed, ASOS said, as price cuts began to take effect.
The group ended the financial year with £119.2mln of cash.
“We are attracting more customers with a continued expansion of our delivery proposition and mobile offerings. Customer engagement has been exceptionally strong, with increases in average order frequency, basket size and value. We now have 9.9mln active customers, up 13%,” Beighton revealed.
“We currently anticipate sales growth for the new financial year of c.20%, gross margin investment of up to 50bps [half a percentage point] and a similar EBIT [earnings] margin to the financial year just ended,” Beighton added.
“Final results were broadly in line with our and market expectations,” notes Freddie George at broker Cantor Fitzgerald.
“Gross margins were reported to be up by 20bps to 49.9% (CFE Research -8bps) recovering strongly in the second half as a result of a strong full price sales mix in this period. Gross margins, however, declined by 230bps in Europe to counter adverse currency exchange movements. Costs were up by 21% impacted by higher payroll and warehousing charges offset by lower marketing,” George continued.
Pro temps, George has abandoned his ‘hold’ rating and has the rating under review while he crunches the numbers.
Liberum, meanwhile, remains a buyer of the stock, all the way up to £30.
Its positive stance is based on operating leverage driving EBIT (earnings before interest and tax) margins from 4.0% to 6.0% by 2019 on the back of sales growth of around 20% a year.
“The company has invested well ahead of growth with DCs [distribution centres] in Europe, the US and China bringing product closer to customers which should underpin sales growth. The Eurohub is to be extended and eventually automated, which will take spare overseas capacity up from its current 56%,” the broker said.
Peel Hunt remains sitting on the fence, saying the final results offered strong key performance indicators (KPIs) but the company’s growth guidance is three percentage points below the market forecast.
“We will up our estimates, although consensus still looks high to us and will come down as upper estimates are reined back,” Peel Hunt said.
“The complexity of investing in multiple distribution hubs means we are less certain about the implied improvement in cost ratios, which is why our numbers still lag consensus. Nonetheless, ASOS looks well placed to deliver its next milestone of £2bn turnover in three years, which will be the primary driver of share price performance if the group can deliver a consistent underlying EBIT margin,” the broker said.
The City certainly liked the KPIs, pushing the share price up 8% to 3,163p by late afternoon.