ASOS shares surge to two-year high, raises profit forecast

ASOS shares surge to two-year high, raises profit forecast

British online fashion retailer ASOS plc (LON:ASC) is revelling in a two-year high in its share price, after the company announced that it expects full-year sales and profit to be “significantly ahead” of previous forecasts due to the surge in online shopping during the coronavirus lockdown.

Shares at the company soared more than 13% on Wednesday afternoon, with investors set to gain from “strong operational performance and year-on-year improvements in profitability”.

Full year profit and sales are expected to be “significantly ahead of market expectations”, with revenue growth projected to fall between 17% – 19% and profit before tax in the region of £130 million – £150 million. 

ASOS cited “stronger than anticipated underlying demand” and the continuation of the “beneficial” new returns policy – aimed at tackling the costly wear-it-once trend – as the key reasons for the company’s resilient performance during the pandemic.

The firm had been expecting to see returns rates “normalise” once lockdown measures eased and customers began to “feel more comfortable” arranging to return their purchases, but instead ASOS announced “a significant and sustained reduction in returns rates since April”.

Demand for popular “lockdown” categories – such as activewear and beauty products – grew more so than for clothing, and this no doubt played a role in reduced returns as these products have historically been harder to send back due to hygiene concerns, even before the pandemic.

However, ASOS also cited a shift in consumer attitude toward online shopping as contributing to the fall in returns, with customers making “more deliberate” purchases since the company clamped down on exploitations of its lenient returns policy.

CEO Nick Beighton welcomed the company’s strong results, commenting:

“ASOS had a strong start to the year, making significant progress against the priorities we set out and delivering a better than anticipated first-half performance, driven by the operational improvements we are making to the business.

“Along with other businesses, we have been significantly impacted by the COVID-19 outbreak. Our first priority was to quickly put in place the necessary measures to ensure the health and wellbeing of our people. I have been extremely impressed with the pace of change and the flexibility our teams have shown in adopting these new ways of working.

“Since then, we have been focused on keeping our business delivering for customers whilst implementing a series of actions to mitigate the sales impact we have been experiencing. At the same time we have been working to strengthen our financial position, including reaching agreement with our lenders to provide us with additional short-term financial flexibility”.

Despite its strong balance sheet, ASOS warned that it could not yet make solid predictions of its future performance, stating:

“Looking forward, the consumer and economic outlook remains uncertain and it is unclear how long the current favourable shopping behaviour will persist”.

Shares at the company nonetheless surged by 13.10% to 4773.00p at BST 15:14 12/08/20, continuing an impressive track record – up 50.55% over the past 6 months.