Asos hits youth sweet spot again with soaring profits, sees huge global potential

By

Sandra Halliday

Published
Oct 17, 2017

There’s been a lot of speculation this week over just how good the Asos final results would be and on Tuesday morning we found out. The answer? You guessed it, they were good, really good. Revenues up 33% and pre-tax profit up 145% certainly lived up to all the expectations and more.

As it continued to resonate with 20-somethings and teens, the company’s revenues edged ever closer to £2 billion, gross profit got close to £1 billion, and its pre-tax profits rocketed 145% to £80 million in the year to the end of August. The fashion e-tail giant managed to score highly on so many metrics. It boosted its active customer numbers by 24% and also encouraged shoppers to increase their average basket value by 2%, while average order frequency rose 5%. 

It shipped almost one-third more orders than in the prior year and found that pot of gold at the end of the rainbow all retailers want - an increase in full-price sales.

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And as well as that full-price boost, with 41% of its sales being of its own brand, and a total 60% of sales being for products exclusive to the e-tailer, margins improved, despite its heavy investment spend during the year.

Part of that investment included spending money on improving its growth categories. It’s accelerating its performance sport offering and the Asos 4505 activewear range will launch in 2018, along with range extensions into snow and surf.

And last month it relaunched Face + Body, to help turn it into a destination for all things face, body, skin and hair. It said initial reaction has been “very positive in a market that is predicted to be worth £450bn p.a. globally by 2020.”

It has also just developed and rolled out a fully refreshed site navigation and search, as well as category and brand list pages and is continuing to leverage machine learning and experiment with augmented reality.

THE NUMBERS

Let’s take a closer look at the figures. In the latest year, group revenues rose 33% to £1.923 billion, and while that was flattered by currency exchange effects, at constant currency (CCY) they still rose 27%. Retail sales rose 34% (27% CCY) and within that, UK retail sales were up 16% to £698.2 million, even though the UK market has been extremely tough. International retail sales soared 47% to £1.178 billion (36% CCY).

US retail grew by 46% (31% CCY) driven by price investments, increased conversion and higher average basket value. EU sales grew by 45% (34% CCY), as free returns across the whole of the EU boosted its appeal.

Rest-of-world (RoW) retail sales surged 52% (42% CCY) on the back of further price and proposition investments with Russia and Israel the standout performers, achieving triple-digit sales growth of over 200% and 150% respectively.
That all turned into a 33% gross profit boost to £958.3 million and pre-tax profit up, as mentioned, by 145% to £80 million.

It also also helped the company report a retail gross margin up 10bps to 48.6%, as the need for price investments in the US, Europe and some RoW territories was offset by the higher full-price mix. Delivery receipts grew 18% aided by higher next-day delivery usage and the expansion of its Premier service globally.

UPBEAT OUTLOOK

Its no surprise that Asos now expects sales in the current year to rise anywhere between 25% and 30% so you could forgive CEO Nick Beighton if his results-statement had been superlative-heavy. But he was fairly understated, despite saying that “it's been a great year.”

He described the international performance as "excellent” and said that “in a competitive UK market, we achieved strong full-price performance whilst further increasing market share.”

He also highlighted the firm’s increased investment in initiatives such as its new agile technology platform that’s allowing the firm to accelerate the pace of innovation, including new payment methods and additional language sites to come. And he said the investment being made will see it adding 1,000 new jobs and will lay the foundations for around a 60% increase in unit capacity and an extra £4 billion of net sales.

So where will these new sales come from? The company said that it still sees big opportunities across key markets globally. “The global apparel market continues to undergo significant channel shift, with growth online outstripping the overall market,” the CEO explained. “Online penetration will continue to increase and Asos is well placed to capitalise on this shift in customer behaviour.”

And if it can replicate what it has done in the UK, its confidence would seem to be justified. In the UK, the online clothing market has grown at more than twice the rate of the overall clothing market across the last five years and Asos has beaten this overall growth. Internationally, it has already been able to turn in consistent double-digit sales growth that has outstripped wider fashion e-tail growth in its key territories. But its market share of online sales “remains modest” in international markets so the potential for it is huge. 

KEY FOCUS AREAS

A key part of its growth strategy is ensuring logistics are up to scratch and the company has talked extensively about its new facilities in both Europe and its plans for the US. But a big part of the growth plan is also about getting its messaging right.

The company has a calendar of acquisition and engagement activity to target new customers and encourage existing ones to spend more. On Tuesday it said that it particularly wants to grow penetration among students globally. Its 'hero' campaign has “successfully reached” students on campus and online in the UK, US, France, Germany, Australia and Italy. And the student discount proposition has been extended into eight new markets with plans to further develop this programme during the current year.

The company has also maintained investment in relevant, emerging content formats like cross-channel video. Its videos were viewed more than 66 million times in the last financial year, double the prior year. And it continues to experiment with pioneering advertising trials across key international markets, "on the platforms that matter most to fashion loving 20-somethings.” It said this activity is already driving heightened engagement across multiple territories.

And as it grows, it’s doing everything it can to make sure that it has strong ethical credentials. Its Fashion with Integrity initiative and its recent deal with giant trade union IndustriALL are part of this. It also said Tuesday that it has reached 70% full traceability across the viscose supply chain and has committed to 100% sustainably sourced cotton by 2025 with it being on track to hit a sustainable cotton target of 70% for 2017.