Oct 11, 2021
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ASOS shares plunge after results/CEO news, but sales still up in double-digits

Oct 11, 2021

News that ASOS CEO Nick Beighton has stepped down rather put the firm’s results statement in the shade. But there’s no denying the company remains one of the most successful in fashion retail, even if growth is slowing.


The fashion e-tail giant reported its figures for the year to August 31 and also committed itself to a new medium-term plan and growth targets.

But first those numbers. The company said its group revenue rose 20% (or 22% on a constant currency basis) to reach £3.91 billion. Retail sales were up 19% (21% CCY) at £3.783 billion, and gross profit rose 15% to £1.776 billion. The gross margin was down to 45.4% from 47.4% but adjusted EBITDA rose 23% to £343.7 million. Reported profit before tax rose 25% to £177.1 million and adjusted profit before tax rose as much as 36% to £193.6 million.

The company also reported 13% growth in its active customer base, which now stands at 26.4 million people. And that sales rise of 22% was helped by "exceptional" growth of 36% in the UK and strong growth in the US of 21%. The EU was up a more tame 15% and the rest of the world (RoW) 6%.

But in the fourth period of its financial year (P4), it saw much slower underlying total sales growth of 15% overall with the UK up 29%, the US up 32% the EU up 4% and RoW down 4%. The EU was most impacted by global supply chain challenges while the RoW region was hit by pandemic disruptions.

And it said the fall in the gross margin for the full year was driven by elevated freight and Brexit-related duty costs, as well as the product mix, foreign exchange headwinds and increased customer investment.

If we were looking for any clues in there as to why the company's CEO quit so abruptly, that margin issue and the final period's figures should give us some guidance. The company has clearly seen a slowdown compared to the rest of the year and the fact that its shares fell nearly 15% in early Monday trading means investors are nervous.

But regardless of this, ASOS remains one of the best-performing fashion retailers in the UK and continues to grow. It saw Face + Body growth of 49% and that’s now a £150 million business. ASOS Design was up 7% in the year and venture brands rose 69%. Meanwhile the integration of Topshop, Topman, Miss Selfridge and HIIT led to “sustained triple-digit sales growth since acquisition”.

But as mentioned, a sales slowdown is an issue. ASOS said FY22 sales growth is expected to be in the range of 10% to 15% with H1 revenue growth in mid-single-digits, which is sharply lower than the latest year.

This reflects tougher comparables in H1 and the industry-wide supply chain pressures that are expected to continue throughout the first half, resulting in longer lead times and constrained supply from a number of partner brands.

But it’s predicting an acceleration of sales in the second half of the year “driven by increased event-led demand, an easing of supply constraints and marketing investment to support international growth”. Its adjusted profit before tax expectations are in the range of £110m to £140m.

Looking longer term, the company has a “plan in place to deliver £7 billion of annual revenue within the next three to four years”. To achieve this it will accelerate international growth, including “doubling the size of the combined US and Europe business”; add “at least £1 billion to annual own-brand sales”; and strengthen the platform with the launch of 'Partner Fulfilment', among other actions.

COO Matt Dunn said of all this: “ASOS has delivered another strong performance, with continued growth in customer numbers driving further increases in sales and profits. Our success has been underpinned by our focus on delighting fashion-loving 20-something customers with greater choice, service, and engagement. We have also continued to invest in our platform and offer, including the successful acquisition and integration of the Topshop brands.

“Looking ahead, while our performance in the next 12 months is likely to be constrained by demand volatility and global supply chain and cost pressures, we are confident in our ability to capture the sizeable opportunities ahead.”

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