Asos shows how it's done as sales and profits soar

By

Sandra Halliday

Published
Oct 17, 2018

When it comes to UK fashion retail, clearly not all retailers are equal and some just know how to make the most of even a tough environment. We've seen it with Boohoo and on Wednesday it was the turn of Asos to show it has what it takes with its full-year results for the period to August 31.

A quick look at the figures says it all: revenue up 26% to £2.417 billion (up 24% currency-neutral); retail sales up 26% to £2.355 billion; UK retail sales up 23% to £861.3 million; international retail sales up 27% to just short of £1.494 billion (+24% currency-neutral).

That was impressive in itself but higher sales are no good without higher profits, of course, and Asos delivered on this front too. Gross profit soared 29% to £1.273 billion; the retail gross margin was up to 49.9% from 48.6%; the gross margin rose to 51.2% from 49.8%; and pre-tax profits rose 28% to £102 million.

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There was so much good news in those figures that it's hard to know where to start in analysing them. The fact that the struggling UK market doesn't seem to be struggling for Asos is one key point, and the importance of even-faster-growing international revenue to the business is another. The third is that the company is clearly not sacrificing profits in order to achieve higher sales.

MORE CUSTOMERS, HIGHER SPEND

Looking closer at the detail, the company said that its active customer numbers rose 19% while average basket value was up 1% and order frequency rose 7%.

And the company seems to be positioned for further growth with its US hub phase one operational and Euro hub phase two in Germany “progressing well”.

It all meant that its guidance didn't need to be changed with expectations of sales rising between 20% and 25% in the medium term.

CEO Nick Beighton highlighted its future potential and said the results were achieved despite a massive investment program taking up a huge chunk of its cash. “Asos is moving fast and is as differentiated as ever,” he added. “The potential for our business is huge and we remain focused on building Asos into the world's number one destination for fashion loving 20-somethings.”

That future potential can be seen clearly from its product development. Its new brand Collusion launched on October 1 and response to the collection, which has initially been designed in collaboration with six young influencers, “has been very encouraging.”

The company has been expanding its product offer further with the successful launch of Asos 4505 activewear, the relaunch of Face + Body, including strategic partnerships with Estée Lauder and L'Oréal, simplification of the brand architecture, further exclusive collaborations and the addition of 300 new brands to the site, while editing out a similar number.

The Asos Design brand continues to account for almost 40% of sales which, combined with exclusive collaborations with third-party brands, leads to around 50% of product being exclusive to the retailer.

It said that last season Asos Design was first to market with one of the year's key pieces, the button-through dress. Over half a million Asos Design dresses were created and sold in varying fabrics and prints, including linen and florals. Animal print was also a standout trend it captured, with around 2,000 options merchandised and selling 1.3 million units across both menswear and womenswear. 

GLOBAL GROWTH

The latest financial year was the company's third consecutive year of sales growth comfortably in excess of 20%, with revenues having more than doubled over the same period. In October 2014 it set an ambition to grow to £2.5 billion of annual revenues by FY20 and it will achieve this level nearly two years early. 

It’s encouraging that the UK arm isn’t holding its ambitions back and it had “an outstanding year, all the more pleasing given the widely reported difficult trading backdrop,” Nick Beighton said. The company gained market share and its UK active customers grew by 15% with an impressive 10% increase in average purchase frequency. 

Sales from the EU also helped and grew 28% currency-neutral as active customers rose a massive 25% to 7 million, 1 million more than in its home market.  

Within the US, currency-neutral sales growth was 25% alongside a 19% increase in active customers. Its main focus in this region during the period was the successful completion of phase 1 of its new US hub in Atlanta, which will enable it to improve its US customer proposition at the same time as accessing future delivery cost savings.

Finally, rest of the world (ROW) sales grew 18% currency-neutral as active customers grew to 2.8 million, up 17% “with particularly pleasing performances in Russia and Israel and a slightly more challenging backdrop in Australia.”

And it doesn’t expect global growth to slow any time soon as worldwide consumer spending shifts online. It quoted GlobalData figures that show online penetration is set to rise between 8% and 10% annually until 2023.

And to make the most of this opportunity, ensuring it reaches customers wherever they spend their online time, the retailer is focusing closely on new technology as well as on those product extensions. 

Engagement through the most relevant social channels remains a key part of its customer-led content strategy. It was an early adopter of Instagram Stories and has seen “fantastic engagement” here. It also progressed with Instagram Shopping, working in collaboration with Instagram to launch a geo-targeted shopping feed. Asos was the first brand to have successfully launched in multiple currencies having worked alongside the social media network to overcome the currency issues.