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ASOS PLC

ASOS stumbles again as teething troubles at new Atlanta warehouse knock US sales

The distribution centre in Atlanta went fully online last month but the 700 or so workers struggled to keep up with the sheer volume of orders coming through

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At almost £3bn, ASOS is one of the biggest companies on London’s AIM market

ASOS PLC (LON:ASC) is adamant it remains on track to hit recently-revised full-year targets despite a drop-off in US sales and “challenging” conditions in the online fashion retailer’s two biggest European markets.

Total retail sales climbed 11% to £1.28bn in the six months ended 28 February (H1 18: £1.13bn) as shoppers placed 17.3mln orders – a year-on-year increase of 15%.

READ: ASOS’s Christmas sell-off was overdone, says RBC

Sales in the UK – ASOS’s largest market – climbed 16% to £481.5mln in the first half (H1 18: £414.5mln).

But growth in Europe slowed sharply, with sales up 10% compared to the same period last year to £402.2mln (H1 18: £349.1mln).

To put that into context, at the halfway stage of 2018, sales had soared by 40%. Bosses said the slowdown this time around was due to “challenging” conditions in France and Germany.

US ‘behind plans’

US sales edged 4% higher in the six-month period to £161.6mln (H1 18: £149.0mln), while they fell over December and into the new year as ASOS’s new warehouse in Atlanta struggled to keep up with demand.

Rest of world growth slowed as well, with sales climbing 9% to £236.0mln (H1 18: £218.7mln), although they have picked up again in recent weeks.

A host of other metrics didn’t make for good reading either: Average selling prices fell 1% year-on-year and the average basket value dropped 2%.

Gross margin edged 40 basis points higher during the period, while order frequency and active customers also rose.

Guidance maintained

ASOS repeated the expectations which it reset in December’s shock profit warning following “a significant deterioration” in November trading.

For the year, it is still forecasting sales growth of 15% and a 150 basis point fall in gross margins as it cuts prices, particularly in France and Germany, to try to boost the top line.

As for capital expenditure, that is also expected to remain at around the £200mln mark and net debt come the year-end, should sit at around £50mln.

Things picking up after ‘disappointing Q1’

“Our US performance was behind our plans during the period,” admitted chief executive Nick Beighton.

“As our Atlanta warehouse went fully online, demand far exceeded our expectations. Whilst very encouraging for the longer term, this caused a significant short-term despatch backlog which we have now cleared.

“These delayed shipments will be recognised in P3 and US trading is now regaining momentum. Our ROW segment returned to good growth of 20% after a disappointing Q1.”

Beighton, who has been CEO since 2015, added: “We will be increasing investment in price and marketing in the second half, particularly in France and Germany.

“Given the actions we are taking together with an improving US performance, we believe the group will deliver stronger growth in the second half. Consequently, we remain confident that we will meet guidance for the full year.”

Shares were down 9.3% to 2,917p in early afternoon trading.

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Quick facts: ASOS PLC

Price: £22.68

Market: AIM
Market Cap: £1.9 billion
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