Online fast fashion phenomenon ASOS (ASC:AIM) is rallying strongly on Wednesday. Shares in the £4bn-plus business have jumped close on 15% to £57.34 - reversing all of the recent market sell-off losses - after unveiling forecast-beating annual results that, refreshingly, don’t make a single mention of the weather.
This is hugely reassuringly for investors given the flurry of retail sector profit warnings in recent weeks. ASOS is leaving its medium-term sales growth guidance unchanged at circa 20% to 25% a year but this is a firm statement of intent from no-nonsense boss Nick Beighton (pictured below) who has once again hinted at the ‘huge’ potential for the business.
ASOS is also guiding for earnings before interest and tax (EBIT) margins of around 4%, with annual capital expenditure anticipated in the £230m to £250m range.
MODEST FORECAST BEAT
Results for the year to 31 August from the global fashion store reveal a 26% rise in group revenues to £2.417bn, ahead of the £2.406bn called for by consensus and marking the third consecutive year of sales growth comfortably north of 20%. Pre-tax profit up 28% to £102m. Again, this is slightly ahead of the £100m consensus of analysts’ estimates and is delivered despite ASOS remaining in a heavy investment phase.
These stellar numbers help ASOS’ shares bounce back into fashion, having plunged on a poorly-received third quarter update in the summer. Shares explained the reasons for the share price reverse in depth here, arguing weakness presented a buying opportunity.
Encouragingly, ASOS’ annual figures reveal growth is being pretty equally shared between the UK and international markets. In fact, UK retail sales growth of 23% is slightly better than the 22.8% consensus estimate and ASOS’ key performance indicators are tracking positively; active customers are up 19% year on year to 18.4m and average order frequency is improving.
MOVING FAST, POTENTIAL IS VAST
Chief executive officer (CEO) Nick Beighton is clearly chuffed to bits with the performance, flagging 26% and 28% growth in sales and profits respectively while maintaining hefty investment ‘in the long-term potential of the business.’
‘All our financial and customer key metrics have shown positive growth.’
Beighton concludes with his ongoing belief that ‘the potential for our business is huge and we remain focused on building ASOS into the world’s number one destination for fashion loving twentysomethings.’
It is well worth noting that ASOS is growing faster than the overall shift of fashion purchases to online, and that means increasingly expanding the firm's market share.
The company highlights rough 8% to 10% global online retail growth by 2023.
Peel Hunt remains a believer in this incredible British growth story, calling the figures ‘outstanding’. Analysts at the broker calculate that the share price could soar to £82.00 over the coming months. If they are right, it implies that investors slow to the story so far still have a huge wealth creation opportunity at hand.
With a million square feet of US warehouse space now available (thanks to a new base in Atlanta), ‘we expect an accelerating performance into 2019,’ says Peel Hunt.
Liberum Capital is similarly impressed and expects ‘sales growth of 25% in full year 2019 to £3bn.’ Liberum has an £80.00 target price on the stock.
