Revenue of £1.4bn was up 24% in the first quarter. Overall demand is still suppressed, but was better than ASOS had expected as more people continue to shop online. New national restrictions mean returns rates have declined again, which helps reduce costs. ASOS expects a net positive £40m impact from COVID on pre-tax profit in the first half.
There's no change in outlook for the rest of the year. But the better Q1 means full year pre-tax profit is expected to be at the high-end of market estimates.
The shares rose 4.3% following the announcement.
A digital only set up means ASOS can keep trading during lockdowns. And trade it has. Yet another double digit climb in sales is no mean feat in this environment.
Perhaps most dizzying is the improvement in operating margins at the full year. We've been watching these like a hawk since they dipped to a paltry 1% not too long ago. 4.8% might still lag behind peers but it's a significant step in the right direction. (That margin surge is likely temporary though - on which more later).
It's also hard not to commend the group for its improvements in customer engagement. This doesn't tend to get a shout out in headline numbers, but in today's saturated marketplace this shouldn't be overlooked. Trendy (and less expensive) rivals like boohoo are snapping at ASOS' heels, so the fact that it's been able to keep millennial eyes on its screens is good going.
But it's not a case of "job done".
A lot of ASOS' fortunes are outside of its control right now. A rough economic outlook and disruption to way of life for its core customers, means mapping future demand is pretty much an impossible task.
There's also the issue of continued gross margin (sales revenue minus the cost of the goods sold) pressure. A highly competitive environment means ASOS continues to slap sales stickers on stock, and a long-term shift away from more profitable going-out or office wear will make this a bigger problem.
And with marketing and infrastructure spending being ramped back up, the shopping list is getting longer, which could put a ceiling on profit growth.
A lower rate of returns is saving the group a lot of money, which will help stem some margin outflow. Problem is, this isn't likely to be a long-term tailwind. It's likely operating margins will dip in the medium term.
The planned response leans heavily on new, more efficient (and in some cases, automatic) warehouses. When things are going well ASOS can leverage these big facilities to service increased sales, boosting profits as they go. But - and this is a big but - if sales were to turn sour, the expansion just adds additional fixed costs, and margins will wither.
ASOS' medium-term is going to be governed by external forces. It's put in a lot of leg work and we're genuinely impressed by improvements to its proposition. We think ASOS has operationally turned a corner, and could offer long-term potential for those happy with the external risks involved. Keep in mind though, an unclear medium-term picture of demand patterns means we don't know what margins are going to do. Investors should exercise some caution.
ASOS key facts
- Price/Earnings ratio: 41.0
- Ten year average P/E ratio: 54.0
- Prospective yield (next 12 months): 0%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
First quarter trading details (all figures at constant currency)
ASOS' active customer base rose by 1.1.m to 24.5m. Growth in new customers offset weaker trading patterns from some existing customers.
Gross margins dipped 90 basis points, because of changing demand patterns, with customers shunning occasion-led shopping in favour of lockdown category items. There were also higher costs, including: investment in customer acquisition, and higher freight costs because of Covid disruption.
In the UK revenue rose 36% to £554.1m and was the best performing region. Sales were boosted by the closure of non-essential shops during the peak festive period. ASOS has signed a lease on a 4th fulfilment centre, in Lichfield.
EU sales were up 18% to £390.7m. Growth was less impressive here because some markets saw clothes shops continue to trade during lockdowns. Growth in the US was only slightly lower, at 17%, reaching £156.8m. The automation of the US fulfilment centre will begin this year.
Rest of World sales of £224.2m rose 20%, driven by Australia and the Middle East North Africa region.
ASOS expects Brexit tariff costs of around £15m this financial year. Full year capital expenditure forecasts have been upped by £20m to around £190m, which will fund increased investment in automating US operations.
The group said it had a "strong net cash and balance sheet position", despite negative working capital movements.
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