UK online fashion retailers Asos (ASC:AIM) and Boohoo (BOO:AIM) received a nice lift on Friday after German rival Zalando SE raised its full year earnings guidance thanks to stronger than expected trading in the last three months.
Asos rallied 3% to a 12-month high of £54.51 while Boohoo gained 2.2% to 344p on the news that Europe’s leading online fashion retailer had raised its outlook for the year ‘after exceptionally strong and profitable growth in the third quarter’.
The German firm, which had annual sales of €7.7 billion last year compared with £3.2 billion for Asos and £1.6 billion for Boohoo, lifted its forecast for revenue growth from 15% to 20% previously to more than 20%, and raised its EBIT (earnings before interest and tax) target from €250 million to €300 million to between €375 million and €425 million, an increase of more than 40%.
Zalando attributed the upgrade to ‘an accelerated consumer demand shift towards digital offerings in the course of the corona pandemic’ as shoppers stayed at home and ordered online.
The company also echoed previous comments from Asos, noting ‘a continued lower return rate’ as customers held onto more of the goods they had ordered rather than sending them back for a refund.
Asos said in its August pre-close trading update that it had expected underlying returns ‘to normalise once lockdown measures eased and customers were both able to ship returns and felt more comfortable doing so’.
However, returns didn’t increase as expected, partly as customers ordered more ‘lockdown’ categories such as activewear and face and body products, and partly due to ‘a prolonged shift in customer behaviour towards more deliberate purchasing across all product categories, even when sales momentum has improved’.
Confirmation from Zalando that returns are still low is good news for profit margins and suggests Asos and Boohoo might raise guidance when they next update the market.
