ASOS profits fall 87% amid challenging retail climate
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ASOS profits fall 87% amid tough retail climate

By Deborah Williams 10 Apr 2019

UK online fast fashion retailer ASOS has reported a decline in profits before tax of 87% to £4m for the six months to 28 February 2019.

ASOS profits fall 87% amid tough retail climate
ASOS profits fall 87% amid tough retail climate. Credit: Guy Sie

UK online fast fashion retailer ASOS has reported a decline in profits before tax of 87% to £4m for the six months to 28 February 2019.

The retailer’s total sales increased by 14% to £1,314.5m from £1,158.1m in 2018. Retail sales increased 13% to £1,281.3m from £1,131.3m the previous year.

ASOS CEO Nick Beighton said: “We grew sales by 14% despite a more competitive market. ASOS is capable of a lot more. We have identified a number of things we can do better and are taking action accordingly. We are confident of an improved performance in the second half and are not changing our guidance for the year.

“We are nearing the end of a major CapEx programme. Whilst this has inevitably involved significant disruption and transition costs, the global capability it now provides us gives us increased confidence in our ability to continue to capture market share whilst restoring profitability and accelerating free cash flow generation.

“Global online fashion is a growing, £220bn+ market. We now have the tech platform, the infrastructure, a constant conversation with our growing customer base who love our own great product and the constantly evolving edit of brands we present to them. We believe that ultimately there will only be a handful of companies with truly global scale in this market. We are determined that ASOS will be one of them.”

Analyst praises ASOS performance

GlobalData senior analyst Sofie Willmott said: “With challenging market conditions to contend with, as well ongoing major transformational projects to deliver, ASOS has admitted it took its eye off the ball in H1. However, despite UK sales growth slowing on last year, the online pureplay has continued to far outperform its competitors.

“ASOS delivered double-digit growth once again, enabling it to steal market share from players who are failing to excite shoppers such as New Look and the Arcadia brands. UK revenue rose £67m to reach £481.5m as conversion and order frequency improved, and with 21% of active UK customers signed up to ASOS Premier (1.3m Premier customers, +26% on last year), ASOS has an engaged, loyal shopper base that its competitors can only dream of.

“As expected, ASOS’ operating profit has dropped off a cliff, impacted by investment in improvements to logistics and technology to support future growth. However, given its major projects are almost complete, the retailer expects EBIT margin to be ‘restored’ in the medium term (presumably FY2019/20) which will go a little way in reassuring investors concerned by ASOS’ shrinking profit margins.”

ASOS ‘must focus on own range products’

Willmott continued: “Despite the choice often feeling overwhelming, the retailer’s ability to offer a plethora of brands on one destination site has bolstered growth in H1, with third-party brand revenues up 18%. In comparison, its own brand range lagged behind – ASOS Design sales rose just 5%, accounting for 36% of sales. ASOS must ensure its own ranges are a focus so that it can benefit from higher margins and also emphasise its unique selling point, particularly when competitors, such as Amazon and Next are ramping up their branded clothing offer.

“The online fashion leader still expects to achieve full-year growth of 15% as outlined in December, meaning it has much to do in H2. Although Europe remains a concern for the retailer, which must be quickly addressed given that it accounts for almost one-third of sales, there are additional growth opportunities in the US now that the Atlanta warehouse has opened, despite difficulties in meeting demand initially,” concluded Willmott.