UK: Asos disappoints as shares slide on spending plans
- Q2 sales climb 26.1%
- EBIT margin to reduce to 6.5%
- Capex increase to "at least" GBP68m
Retail sales were strong in all territories except rest of world
Analysts have described Asos' second-quarter trading as "disappointing" after the online fashion retailer's shares fell on plans to ramp up investment, which is expected to hit its operating margin.
Asos shares fell 13% to trade at 5,500 pence at 11:24 GMT today (18 March), after the retailer said it would increase capital expenditure this year to "at least" GBP68m (US$113m) from GBP55m as it accelerates investment in UK and Germany warehousing and in IT.
This, it said, as well as the investment in its China start-up, will reduce the group's EBIT margin for the current financial year to around 6.5% from 7%.
Total retail sales in the two months to the end of February climbed 26.1% to GBP136.7m. This, however, was 4.9% below a Bernstein analyst consensus' forecast of GBP143.7m, as foreign exchange headwinds in its rest of the world division impacted sales.
Retail sales were strong in all territories except rest of world where Asos experienced adverse currency movements, notably in Australia and Russia. Sales in this division increased 3% to GBP33.5m.
Europe was the best performing region, with sales up 57.1% to GBP40.3m, while UK retail sales reached GBP48.4m, represented 21.3% year-on-year growth.
Cantor analyst Freddie George said the two months trading was "disappointing".
"The UK and the ROW sales were below both CFE and market expectation. The company, we believe will now focus on a limited number of markets with a view to making them as significant as the UK rather than taking a scatter gun approach to global expansion This will be done with the development of a small dedicated infrastructure in each of these developing markets."
Conlumino analyst David Alexander said that while the results represent "a slight tempering of growth from the giddy heights of Asos's stellar Christmas performance", a minor loss of momentum should not detract from an upward trajectory which has seen the fashion etail powerhouse post "stratospheric" numbers in recent times.
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