Online fashion store ASOS (ASC:AIM) has announced plans to expand into China, sending its shares 3.3% higher to £31.76. Investors also cheered better-than-expected half-year figures showing robust growth across most key metrics.
ASOS is to make its Chinese debut early in the new financial year which starts in September. Having reviewed this vast market, ASOS says China will be served by a standalone technology platform and website. There will also be a local third-party distribution centre, a local delivery service and local payment methods.
Reflecting the scope of the Chinese opportunity, ASOS will also invest in a much larger in-country team than other international markets. As a result, the retail star says it will spend between £4 million and £6 million in the fiscal years to August 2014 and 2015 to build out its Chinese infrastructure.
Expansion plans will also involve stepping up operations in Russia where operations will be served from its Barnsley distribution centre, along similar lines to other EU target countries, rather than sporting its own set-up like China. The market has responded positively to news the launch of a Cyrillic website has been brought forward from October to next month.
Global expansion is at the heart of the investment case of the web-based fashion phenomenon, which has six million active customers worldwide and insists its £1 billion sales target is 'firmly in our sights'. Focused on fashion-conscious 20-somethings, ASOS already has local language sites for the UK, US, France, Germany, Spain, Italy and Australia and is building market share in the enormous US market.
Interims to 28 February show no let-up in ASOS' heady growth rates. Taxable profits skipped 11% higher to £25.7 million, ahead of the £24.7 million consensus, on retail sales up 34% to £352.3 million. Within that mix, international sales surged 40% higher to £214.7 million and even in the hard-pressed UK market, retail revenues rose 26% to a better-than-expected £137.6 million as ASOS enjoyed a good run-up to Christmas.
Following today's announcements, Numis Securities' Andrew Wade has moved his recommendation from 'add' to 'buy'. The analyst has a £37.50 price target for ASOS, which he views as 'a unique global proposition, which will continue to invest in driving exceptional growth.' Bearish on the stock is Espirito Santo, with a 'sell' rating and £12 fair value estimate, with the broker pointing out that 'consensus PBT forecasts for FY14E could fall from £69.8m to £65m', in part due to the cost guidance on China.
