Asos 13% sales rise disappoints, challenges in UK, US, France and Germany
Asos sales continue to rise in double-digit percentages in Q2 (the three months to the end of February), but they also continued to rise at a slower rate than in previous periods and that meant investor disappointment, with the firm’s shares falling 5% in early Tuesday trading.
The fashion e-commerce giant issued a trading update on Tuesday morning and said that its total retail sales rose 11% on a currency neutral basis, or 13% on reported basis in the three-month period, to reach £641.3 million. While some retailers would envy those figures and while that percentage increase was in line with the overall rise in the first half (the six months to February 28), there were also signs of some weakening of trade in the UK. Asos said that retail sales in the company's biggest market rose 14% in the quarter to reach £244.4 million. But that was less than the 16% increase during the first half. Retail sales growth in the EU also slowed in the three months, lifting 12% to £198.4 million, or an 8% increase currency neutral. In the first half as a whole, EU retail sales were up 15% reported and 10% currency neutral. Retail in the US was also weaker and in fact, while reported retail sales rose 4% to reach £76.6 million, they fell 3% on a currency neutral basis. In the first half they had been up 8% reported and 4% currency neutral, the Q2 figures reflecting currency volatility as much as slowing growth. But in the rest of the world, retail sales growth accelerated. It rose 20% (or 21% currency neutral) in the three months, to hit a total of £121.9 million, while in the first half it was up only 12% (or 9% currency neutral). It all meant that the international retail sales picture as a whole was positive with a 13% increase to £396.9 million. In the first half, the reported rise was 12%, while the currency neutral increase was also 9%. There was good news on the retail gross margin, which rose 40bps, and the company said that total orders placed were up 15% year-on-year at 17.3 million. Yet while its active customer numbers rose 16%, it's clear that these customers are very price conscious and the average selling price fell 1%. Meanwhile the average basket size also dropped 1%, and the average basket value fell 2%. While order frequency was up 4%, conversion was flat. None of which is exactly disastrous given the current retail conditions, particularly in the UK, and it meant that the company kept its forecasts for the full-year unchanged. It expects sales growth of 15%, the retail gross margin to dip by 150bps, and the EBIT margin to stay at around 2%. But investors and analysts have become used to explosive growth at the company and this has kept the share price much higher than the average in the UK, so it’s no shock that their disappointment translated into that share price fall.
CEO Nick Beighton highlighted the fact that the company “continued to outperform in the UK with sales growth of 14%” and that European sales stayed strong. However he also said that France and Germany, “our two largest [European] markets, continue to be challenging.” He said the company's US sales had been lower than its targets and that as its Atlanta warehouse went fully online, “demand far exceeded our expectations.” While that's good news in some ways, it “caused a significant short-term despatch backlog which we have now cleared. US trading is now regaining momentum.” The company plans to increase its investment in price and marketing in the second half, particularly in France and Germany. “Given the actions we are taking together with an improving US performance, we believe the group will deliver stronger growth in the second half,” Beighton said.
By Sandra Halliday
Copyright © 2019 FashionNetwork.com All rights reserved.