ASOS shares tank as third quarter sales miss market forecasts

ASOS left its full year estimates unchanged but expects sales growth to be at the lower end of its guidance range

ASOS has gained from the growing shift towards online shopping

Online fashion retailer ASOS plc (LON:ASC) said it was on track with its plans for the year after delivering a jump in third-quarter revenue, but shares dropped as the results missed analysts' expectations. 

Group revenue rose to £823.9mln in the four months to June 30, from £675.8mln the same period a year ago -- a 22% increase at actual exchange rates or 21% gain at constant currencies.  

Analysts expected group revenue to rise 25.3% at constant currencies, sending the shares down 10.12% to 5,842p in morning trade.

Retail revenue increased to £802.7mln from £660mln last year, up 22% on a reported basis and up 21% at constant currencies. 

ASOS shrugs off tough UK retail market

In the UK, retail sales rose 23% to £288mln from £234.6mln last year as the company continued to grow its share in a market that has been hit by weaker consumer confidence.

Despite a challenging UK retail market, ASOS has gained from the growing number of consumers shunning the high street to find deals online.

This shift in consumer behaviour has put traditional bricks and mortar retailers under pressure, forcing the likes of House of Fraser, Debenhams PLC (LON:DEB), Marks and Spencer Group Plc (LON:MKS) and New Look to close down stores across the UK.

International sales 

ASOS has also grown in popularity across the rest of the globe.

In Continental Europe, retail sales jumped 31% to £257.4mln from £196.6mln while sales in the US gained 15% to £108.1mln from £94.4mln and the rest of the world (ROW) grew 11% to £149.2mln from £134.5mln.

International retail sales edged up 21% to £514.7mln from £425mln, as ASOS continued to invest in its infrastructure.

"While the UK posted an outstanding third quarter, boosted by category expansion and clear market share gains, ASOS chose not to chase sales in EU that are less profitable (until efficiencies improve in FY19), and growth in ROW was impacted by a slower performance in Australia and a step-up in returns rates following the broader roll-out of Free Returns last year (now annualised)," Numis said. 

Active customer numbers rose 20%, the average basket value grew 1% and the average order frequency was up 8% during the period.

The retail gross margin rose by 130 basis points (bps), which the company said was ahead of plan.

Full year guidance

For the year, the group expects the gross margin to rise 100bps and anticipates pre-tax profit will be in line with the market consensus forecast of £101mln.

ASOS said it sees full-year sales within its guidance of 25% to 30% growth, although likely towards the lower end of the range.  

Capital expenditure estimates of £230mln to £250mln for the year were left unchanged. The company continues to expect 20% to 25% sales growth per year at 4% EBIT margin in the medium term.

READ: ASOS rallies as it appoints former ITV boss Adam Crozier as chairman

“I am pleased with the way the business has traded over the last four months and we are on track with our plans for the year,” said chief executive Nick Beighton.

“We delivered good sales growth, particularly in the UK, better-than-planned gross margin alongside significant progress on our infrastructure investments.”

Beighton said trading in the fourth quarter has started well, particularly full price sales, and the company remains “confident of delivering another year of strong growth”. 

ASOS shares a 'good buying opportunity' for investors

Liberum repeated a 'buy' rating and target price of 8,000p on the stock, sayings it sees the 10% decline in the share price since mid-March as a "good buying opportunity".

"We are encouraged by current trading, where the company notes Q4 has started well, particularly in terms of full price sales, reflecting a disciplined approach to discounting," the broker said. 

"We make no change to our earnings forecasts and do not expect a material change to consensus."

Numis also retained its positive stance with a 'buy' rating and target price of 8,500p. The broker said it believes the company's "outstanding customer proposition and significant investments are supporting and driving a vast long-term profitable growth opportunity".

Quick facts: ASOS PLC

Price: 3064 GBX

Market: AIM
Market Cap: £25.87 m

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