For the first 5 months of the year it was business as usual in terms of the online fashion retailer’s market performance. Its January update was stellar, with a 36% surge in group revenue for the 4 months to the end of December. ASOS’ half year figures in April were similarly strong, with a 14% rise in pre-tax profit to £27.3 million thanks to a 37% jump in sales to £911.5 million (and, even more promisingly, a 54% increase in international sales).
And while the stock did have a bit of a wobble after these interim results, namely due to 0.4% contraction in ASOS’ retail gross margin across H1 and subsequent downgrade from Credit Suisse (SIX:CSGN), it soon overcame this early spring blip, soaring to a £65-teasing 3 year high by the start of June.
It was here the company’s problems – though ‘problems’ is perhaps too harsh a word – began. The entire retail sector took a bit of a hit in June, as rapidly rising inflation and falling real wages sparked (accurate) fears about household spending in the UK. Amazon’s announcement of ‘Prime Wardrobe’, a subscription-based box service where customers only pay for what they decide to keep, only made matters worse, as investors fretted about the US giant muscling in on ASOS’ turf.
This left the stock floating between £55 and £60 throughout the summer and well into autumn, with ASOS (LON:ASOS) now at a current trading price of £58.91.
Even mid-July’s third quarter report couldn’t help, despite ASOS posting a 35% rise in revenue to £675.8 million, a 3% increase in the value of the average basket and a 28% surge in total orders shipped to 16.9 million. It seems investors have become used to ASOS’ consistent mega-growth.
In terms of next week’s annual results – which come just over a week after the company launched its same-day delivery service in London – pre-tax profit is forecast to rise 22.5% with sales growth expected between 30-35%. Investors will also be paying keen attention to the firm’s margins, as well as its outlook for the upcoming financial year.
ASOS has a consensus rating of ‘Buy’ with an average target price of £63.38.
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