Asos is a Covid-19 winner once again – What the analysts say

By Beth Wright | 13 January 2021 just style "These are mightily impressive results in an extremely difficult part of the market," says Richard Lim, CEO of Retail Economics

Asos has posted a 23% jump in total group revenue for the four months to 26 December and expects full-year profits to come in at the top end of current market expectations, with an anticipated GBP40m boost during the first half as renewed Covid restrictions drive consumers to shop online. Analysts note the online retailer's fast reaction to lockdown categories such as loungewear, which have brought reduced returns rates as they are less fit-dependent.

Chloe Collins, senior retail analyst at data and analytics company GlobalData: "Asos has proven itself to be a Covid-19 winner once again, with group retail sales throughout the final four months of 2020 soaring by GBP250.9m on the year to almost GBP1.33bn. As store closures were reinstated towards the end of the year, clashing with the key selling periods of Black Friday and Christmas, Asos' superior digital proposition and top of mind appeal has enabled it to continue winning over apparel shoppers, particularly in the UK. The retailer expects profit before tax for FY2020/21 to be at the top end of market expectations, with an anticipated benefit of at least GBP40m throughout H1, thanks to its fast reaction to successful lockdown categories such as loungewear, sportswear and beauty, which have brought reduced returns rates as they are less fit-dependent. "These results are particularly impressive given Asos' usual position as a partywear destination throughout the Christmas period, a category which was rendered redundant in 2020 as social gatherings were prohibited. However, enhanced influencer marketing, which Asos has often shied away from in the past, helped generate excitement around its casualwear offer, with the retailer releasing regular style edits with the likes of Love Island stars, model and Instagrammer Jayde Pierce, and most impressively, Little Mix's Leigh-Anne Pinnock. This strategy has allowed Asos to better compete with the boohoo group for the attention of younger shoppers, as has its new in-house womenswear brand 'AsYou', which launched at the end of October with lower price points than Asos' core ranges. AsYou also features a high prevalence of skimpy, glamorous styles which draw similarities with those of and PrettyLittleThing, however another national lockdown in England was announced days after the brand's launch, which would have limited its initial potential. "Asos clearly has confidence in its future, announcing last week that it has invested GBP90m in a fourth fulfilment centre in the UK, creating 2,000 jobs. This will allow Asos to continue its growth trajectory without compromising on its delivery speed and efficiency which contribute so much to its success. Automation is also set to be incorporated into its US fulfilment centre this year, which will support its international growth, which outpaced its domestic UK market in FY2019/20."

Richard Lim, CEO of Retail Economics: "These are mightily impressive results in an extremely difficult part of the market. Lockdowns, fewer opportunities to mix socially and cancelled Christmas parties have decimated the demand for new outfits this year. But what consumers did spend was focused towards casual-wear and channelled online with the retailer was well position to leverage this opportunity. "The huge shift online this Christmas pushed the retail sector to its limits, from the pressure on website infrastructure to constraints across delivery networks. Asos has benefited from the vast investment made on its online operations and they are much better positioned to cope with peak demand than the competition. "The volume of returns can make a huge dent in online profitability. With social restrictions making consumers think twice before venturing out to make returns, the retailer also benefited from less stock flowing back to warehouses."

Greg Lawless, analyst at Shore Capital: "Pure-play fashion platform Asos has delivered a beat to Q1 trading with group revenues in the four months to 31 December 2020 up by 23% year-on-year or 24% on a constant currency basis. "Revenue growth surpassed expectations with a stronger UK performance with UK sales up 36% year-on-year and now represent 42% of the group mix. The statement highlights that the exceptional UK growth reflected both the product proposition together with the restrictions on non-essential retail stores through the peak period (lockdown 2.0 in November and then the extensions of the tiering system through Christmas). "Across the international markets (now 58% of the mix) EU saw growth of 18% year-on-year to GBP391m, US sales growth was 13% (up 17% at constant currency) and RoW saw growth of 15%. In total international sales grew 16% at reported (and 18% on a constant currency basis. This is a strong performance given the Covid headwinds and in our view, the international segment is coming of age. "We believe 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."

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