ASOS bounces back and makes efficiency a priority

ASOS bounces back and makes efficiency a priority

asos

There was a sharp bounce in the share price of online fashion retailer ASOS (LON:ASC) after its full year results, probably more an indication of relief that there was no more bad news rather than a positive reaction to prospects.

In the year to August 2019, revenues improved 13% to £2.7bn and the decline in pre-tax profit from £102m to £33.1m was within the expected range and better than some expectations. The gross margin fell from 51.2% to 48.8%. Operating margin fell from 4.2% to 1.3%. Warehouse transition costs increased from £25m to £45m.

The rise in the revenues shows that there is customer demand. UK retail sales were 15% ahead and international sales increased by 11%. EU sales rose more quickly than the international average, but it was held back by the 9% growth in the US.

There was a 10% increase in active group customers to 20.3 million, but the average basket size was slightly lower. There is improved spending by younger customers.

There was a swing from net cash of £42.7m to net debt of £90.5m. Stock levels have increased.

Management is being strengthened with a chief customer officer, chief strategy officer and chief growth officer recently appointed. This will spread the management of the business more than in the past when the chief executive had more of the burden.

Priorities

The key to the priorities for this year is operating more efficiently. Management says that the automation problems at the European hub have been resolved and it is fully operational. The US warehouse appears to be working well and some cities are being offered next day delivery.

ASOS also wants to widen its product range and improve the presentation on the website and the engagement on social media. This will help to improve the acquisition and retention of customers.

Future

This year’s pre-tax profit could reach £57m if revenues continue to grow and the margin is improved.

There was some profit-taking at the end of the week. At 3293p, the shares are trading on nearly 60 times prospective earnings.

A better level of trading for Black Friday will be important for the potential full year outcome.