ASOS PLC (LON:ASC) posted a four-fold increase in profits after a strong lockdown performance.
The online retailer expects to grow profits and remain cash flow positive but it remains cautious on the outlook for consumer demand, considering the economic impact of the crisis on its 20-something customers and the challenges posed by Brexit.
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In the year to August 31, revenue jumped 19% to £3.2bn while profit before tax rocketed 329% to £142mln. The latter had weak comparatives due to substantial investments in IT, operational issues at its warehouses in the US and UK, poor stock availability and aggressive discounting by competitors.
The growth in profit was helped by unusually low customer returns rates through lockdown, a strong operational grip, the removal of non-strategic cost and strategic investments. It gained over 3mln new customers, reaching a total of 23.4mln active customers, despite social distancing in its warehouses.
COVID-19 related costs came in at £45mln, while profits in the current year are expected to take a £89mln hit from a later than usual stock build for peak trading.
Gross margin dipped to 47.4% from 48.8% in 2019 due to increased freight and duty costs reflecting the go-live in the US warehouse in the first half, changes in product mix as customer demand shifted away from occasionwear into casual products categories during lockdown plus higher discounts to offload occasion product.
The AIM giant ended the period with £125mln of net cash as opposed to last year’s £90mln net debt.
Analysts at Hargreaves Lansdown wonder whether these trends will continue in the coming months as partywear demand is unlikely to match other years due to restrictions.
"Job prospects are uncertain for its core group of customers in their 20s and so the company will have to be very choosy about the ranges and prices it offers to maintain demand and stop returns being a major headache once again," analyst Susannah Streeter said.
"Developing its leisure, fitness and beauty lines further is likely to be a good strategy as these are ranges which tend to be sent back less frequently."
Shares slipped 6% to 5,056p early on Wednesday.
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