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ASOS expects to reach top end of sales growth guidance this year after solid trading update

ASOS continues to heap pressure on traditional bricks and mortar retailers as more consumers turn to online shopping

ASOS
ASOS has shrugged off a softening in UK consumer spending

ASOS PLC (LON:ASC) sees sales growth this year reaching the top end of its guidance range after the clothing website continued to grow in popularity in the four months to 30 June.

The AIM-listed online fashion retailer reported a 26% increase in total group revenue in the four-month period to £675.8mln, excluding exchange rate fluctuations.

Retail sales rose 26% to £660.1mln at constant currencies with growth across all its regions, supported by the growing shift towards online shopping.

The number of orders shipped jumped 28% to 16.9 mln, though gross margins were flat compared to the prior year.

ASOS shrugs of weak UK retail market

In the UK, sales edged up 16% to £234.5mln during the period as ASOS shrugged off a softening in consumer spending, which has affected other retailers.

US sales increased 26% to £94.4mln, European Union sales rose 30% to £196.6mln and sales in the rest of the world gained 41% to £134.5mln.

ASOS has been heaping pressure on traditional bricks and mortar retailers who are struggling to keep up with their online rivals.

In the past year, the number of active customers at ASOS has grown 25%, the average basket value of orders placed has risen 3% and the frequency of orders has climbed 6%.

ASOS expects full year profit to meet market forecasts

The company said it expects reported sales in the current financial year to meet the upper end of its estimates for an increase of between 30% and 35%.

Full year profit before tax is anticipated to be in line with market consensus forecasts of £79.4mln, compared to £32.7mln the previous year.

Capital expenditure in the full year is expected to be £150-£170mln in the year as it invests in improving its technology, increasing the headcount and refitting its London head office.  

Medium-term reported sales growth guidance was left at 20-25% per year.

“This good performance has been underpinned by advances across all areas of our business including retail, technology, warehousing, delivery solutions and customer care,” said chief executive Nick Beighton.

“We have made a smooth transition to our new Eurohub 2 facility in Germany and anticipate confirming a new US logistics hub soon.”

In May ASOS warned that a fire at its Eurohub distribution facility in Berlin could cost up to £6.25mln in damaged stock. No injuries were sustained in the blaze and the building's technology, automation and structure remained intact. But about 25% of the two million items housed in the facility were compromised by fire and water damage.

ShoreCap reiterates 'buy' rating on ASOS

"We feel with the investment in Eurohub2 and the likely subsequent opportunity to offer the consumer a more competitive delivery proposition, there is further growth opportunities in the region for the business," said Shore Capital analyst George Mensah.

ShoreCap reiterated a 'buy' rating and target price of 5,810p. Mensah added that the "continued strength" in the company's top line growth was underpinned by positive movements in key performance indicators such as average order value, order frequency and conversion.

"Our current forecasts imply 17.7% sales growth in the UK, which we may nudge down slightly given we interpret management’s strategy in its domestic market to reflect a greater focus on higher full price sales and gross margin.

Shares in ASOS fell initially before rising 0.17% to 5,820p in late morning trading.

Strong global presence will help ASOS withstand UK risks, says Hargreaves Lansdown

George Salmon, equity analyst at Hargreaves Lansdown, said he thinks ASOS is "something of a rarity" in the UK retail sector.

"While weaker sterling and a more frugal consumer give UK-focused rivals sleepless nights, the group’s sizeable overseas sales means its management have no such worries," he said.

"Indeed, the combined size of the EU and US markets means the international growth potential of ASOS is vast."

The challenge for ASOS will be to keep up with the rapid growth in customer demand, which is not a bad problem to have, Salmon added. But with the shares trading on over 60 times expected earnings, the market is "clearly looking for seamless execution", he said.

"In this light, it’s reassuring to see the second European warehouse coming online without a hitch, especially since ASOS encountered some growing pains in Europe a few years ago.”

Quick facts: ASOS PLC

Price: 3319 GBX

AIM:ASC
Market: AIM
Market Cap: £3.31 billion
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