Christmas sales proved stronger than expected at ASOS (ASC:AIM), triggering another earnings upgrade from the online retailer for fashion-loving 20-somethings and sending the high-flying shares up 1.7% to £52.86 on Wednesday.
Also anticipating a one-off Covid lockdown profits boost, ASOS now expects pre-tax profits for the year to August 2021 will come in at the top end of the £115 million-to-£170 million range of analyst expectations and handsomely ahead of the £141 million consensus estimate.
Sales growth in the first quarter to December including Christmas ‘surpassed our expectations’, enthused ASOS, attributing its success to investment in product, pricing and marketing combined with ‘stronger than anticipated consumer demand’ for its fashion wares.
ASOS’ stellar peak period performance also reflected the resumption of lower product returns rates due to the return of tighter social restrictions, which ASOS expects will boost first half pre-tax profits by ‘at least £40 million’.
EXCEPTIONAL UK GROWTH
UK sales shot up by 36% to £554 million in the quarter, this exceptional rate of growth boosted by the restrictions on ASOS’ non-essential store rivals through the peak period including lockdown 2.0 in November, followed by the extensions of the tiering system through Christmas.
International sales were up 16% in total to £772 million, a strong performance given ongoing Covid-19 headwinds.
Shares in ASOS have surged during the pandemic as it accelerates the shift towards online shopping, though management will be hoping effective vaccines will help lift the economic hardships heaped upon its 20-something customer base by Covid.
‘Looking forward, given the uncertainty associated with the virus and the impact on customers’ lives, our cautious outlook for the second half of the year remains unchanged,’ explained chief executive Nick Beighton.
‘However, the strength of our performance gives us confidence in our continued progress towards capturing the global opportunity ahead.’
WHAT THE EXPERTS ARE SAYING
Shore Capital believes that post-Covid, there will be ‘pent up consumer demand, as normal life returns in some form. As a pure-play operator the company has shown agility to pivot towards activewear and has clearly benefited from the closure of non-essential stores during peak trading in November and December, winning new customers.
‘The trick will be to make these sticky given the structural shift online in 2020. The international business is coming of age, as ASOS leverages its global infrastructure.’
AJ Bell investment director Russ Mould said the lower returns rates ‘will have helped the company’s profits, reviving a trend seen in the first half of 2020 where consumers happily ordered goods but were less enthusiastic about queuing up in the Post Office to send unwanted items back.
‘At some point this trend will reverse, but for now ASOS is enjoying the fact its returns department is less busy.
‘It’s not all smiles in its trading. Margins have slipped due to the type of products being sold during lockdown, having to spend more money on marketing to attract customers, and the dreaded increase in delivery costs. It’s also got £15 million worth of Brexit tariff costs to stomach.’