Global online fashion store ASOS' (ASC:AIM) confidence-rebuilding exercise continues with a strong third quarter trading update. This confirms sustained sales momentum behind the business and includes a pleasing gross margin 'beat' for the four months to June.

Click here to read the latest update from the online 'fast fashion' purveyor, rocked by a torrid 2014 of profit warnings and a fire at its Barnsley warehouse. ASOS, whose online competitive advantages we outline here, reports a 27% increase in UK sales to £158.4 million and a 16% rise in international sales to £227.6 million. Buoyed by the performance, CEO Nick Robertson anticipates 'sales for the full year will be at the higher end of our guided 15-20% growth range.'

ASOS - bridesmaid dresses 2

Strong growth in the UK, still ASOS' single largest market, was helped by an increase in the cut-off time for next-day deliveries and new brands on the site. The international performance was more subdued, reflecting tough comparatives and foreign exchange headwinds, with a number of currencies weakening against sterling.

One of today's key takeaways is a better-than-expected recovery in gross margin, up by roughly 280 basis points in the period. This is significantly ahead of expectations – the analysts' consensus anticipated a 30 basis point increase according to Bloomberg – reflecting stronger full-priced sales and tighter stock controls.

Web chart - ASOS - July 15

Ahead of full-year results to 31 August (20 Oct), ASOS is now guiding to a flat gross margin year-on-year versus previous guidance of a 100 basis point decline. Margins at the earnings before interest and tax (EBIT) level are running at around 4%, reflecting investments in overseas price cutting and the customer proposition including free returns trials.

ASOS shares have rebounded strongly from January lows – profit-taking probably accounts for today's 39p reverse to £38.12 – and the stock remains highly rated to say the least. Based on Cantor Fitzgerald's pre-tax profit and earnings per share forecasts of £48 million and 44.7p respectively, the shares swap hands for more than 85-times prospective earnings.

Issue Date: 07 Jul 2015