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ASOS shares drop as worries over costs counter jump in first-half sales, profits

The AIM-listed firm said it is increasing its capex guidance to £230mln-£250mln for full-year 2018, accelerating some of its capital investment projects around the world

ASOS online store
ASOS's retail sales grew 27% to £1.13bn during the six months to 28 February 2018, up from £889.2mln a year ago

ASOS PLC (LON:ASC) shares fell on Wednesday as the online fashion giant saw worries over costs offset a jump in first-half sales and profits, although the stock recovered from an early 10% drop.

In late afternoon trading, ASOS shares were down 1.8% at 6,906p.

The AIM-listed firm saw its retail sales grow by 27% to £1.13bn during the six months to 28 February 2018, up from £889.2mln a year ago, helping pre-tax profits rise by 10% to £29.9mln.

READ: ASOS’s chief financial officer, Helen Ashton to unexpectedly quit her role from next month

The group added that UK retail sales increased by 22%, international sales jumped 31%, and US sales grew by 20%, while retail gross margin increased by 100 basis points to 48.0%, up from 47.0% a year earlier. 

It said total orders placed rose by 28% year-on-year to 29.9mln, while first half site visits exceeded 1bn for the first time.

ASOS said it is increasing its capex guidance to £230mln-£250mln for full-year 2018 accelerating some of its capital investment projects around the world, especially in distribution and logistics, to support the current level of growth.

The group added that its current year and medium-term sales and EBIT margin guidance remained unchanged.

Nick Beighton, CEO of ASOS, said: “Alongside our investment in our people and our technology, we are accelerating investment in our distribution and logistics, laying the foundation for £4bn of net sales, a further step in building ASOS into the world's number one destination for fashion loving 20-somethings."

Rapid growth isn’t delivering any meaningful margin benefits

Nicholas Hyett, equity analyst at Hargreaves Lansdown commented: “You don’t often see a company’s shares fall ... after delivering 25% sales growth, but ASOS’s issue is that while it’s nailing the revenue side of the profit equation, costs seem to have a life of its own."

He added; "Any retailer growing at 20%+ a year will need to invest, but what’s disappointing about ASOS is its tendency to underestimate capex requirements by some tens of millions a year. That the rapid growth isn’t delivering any meaningful margin benefits only adds to the frustration."

 -- Updates share price --

Quick facts: ASOS PLC

Price: 2997 GBX

AIM:ASC
Market: AIM
Market Cap: £2.52 billion
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