UK online fast fashion retailer Asos has continued to reap the benefits of the pandemic lockdown, as consumers choose to shop online. The company saw its customer base soar by 1.5m in the first six months of the year, with sales growth recorded at home and across all its international channels. Analysts offer their thoughts on the retailer’s first-half performance.
Chloe Collins, senior retail analyst at GlobalData, a leading data and analytics company: “Asos continues to dominate the young online fashion market, with its lead only strengthened further during Covid-19 thanks to its unrivalled agility, range and fulfilment. Following a stellar FY2019/20, in which group retail sales climbed by 19.3%, the first half of FY2020/21 saw further acceleration, with sales growing by GBP368.5m to reach over GBP1.9bn. Its home market, the UK, shone the brightest, achieving 38.7% retail sales growth as domestic shoppers have become accustomed to Asos’ reliable delivery proposition and leading brands, with casualwear, activewear and face and body categories leading the charge. The lower returns rates associated with these lockdown products, which are less dependent on fit, helped operating profit soar by 235.8%. However, Asos will be mindful of a return to pre Covid-19 returns rates in the second half of the year, as spend for occasionwear and going out styles rebounds.
“Asos also benefited from transferred spend on former Arcadia brands – Topshop, Topman, Miss Selfridge and HIIT – which it acquired in January 2021 and has fully integrated into its platform. With the US currently boasting the highest growth rates for these brands, the acquisition has already shown that Asos can succeed in elevating international awareness in a way that Arcadia could not. With more products still to launch as Asos aims to reach 10,000 options across all four brands, alongside plans to add more inclusive sizing such as a Curve range for Topshop and Tall for Miss Selfridge in the future, as well as the launch of a Nordstrom partnership, Asos is ensuring that the brands have a strong chance of revival.
“Though there is light at the end of the Covid-19 tunnel and Asos will be ready for increased demand for its more fashion-forward, dressy designs, shoppers’ desire for more comfortable and versatile clothing is expected to be a long-term switch. Therefore, it should ensure that these styles retain a high presence on its social media platforms and that it showcases how items can be styled to suit multiple end uses. Particular focus on building US awareness of its casualwear offer is essential also, with the market’s growth in H1 much more muted than the UK and Europe, as US shoppers still primarily view the retailer as an occasionwear destination.”
Richard Lim, CEO, Retail Economics said: “These are mightily impressive results given the overall pressure rippling through the apparel market. Fewer nights out, canceled holidays and more working from home have decimated demand for new outfits but the retailer continued to power ahead, leveraging the opportunity that the online shift has presented.
“The acquisition of Topshop appears to have gone very smoothly, presenting a chance to impress new customers with an online proposition that is way ahead of the curve. Bolting on the Topshop brand will enhance its appeal to a new segment of online shoppers as the retailer connects with new audiences and continues to grow market share. The pace of the integration was astonishing, relaunching the brand within three weeks of its acquisition showing the kind of agility that other retailers aspire to.
“Overall, the retail industry is entering a period of consolidation as brands benefiting from the digital shift become stronger and look to acquire weaker players in the market. Further acquisitions should be expected.”
Aneesha Sherman, Bernstein analyst: “Revenue is in-line at GBP1.98bn for H1, marginally above our and consensus estimates (GBP1.94bn and GBP1.95bn respectively). This represents a +24% growth year-on-year, which was led by the UK (+39%), though EU, US and ROW all reported growth in the high-teens. Active customers grew 1.5m, representing a 6% increase since the end of FY20. This a slight deceleration of growth since last year – 1H20 saw 2m new customers join at a growth of 16% HoH. Outperformance on profitability. Gross margin (45.0%) was c.100bps below our and consensus numbers (46.2%), which Asos puts down to high air freight cost, FX movement and unfavourable product mix versus. last year. Despite this, Asos was able to claw back profitability on opex, which improved dramatically as a percentage of sales (39% versus 45% last year). Part of this is down to a ‘Covid benefit’ – quantified at GBP49m or 2.5% sales – which primarily manifests in a lower return rate, but also reflected improved efficiency in the underlying operations (we assume due to scale effects on distribution and central costs). EBIT margin of 5.6% was considerably higher than Bernstein (3.1%) and consensus (4.4%).
“FY has been upgraded due to H1 profitability, though the H2 view is unchanged. Sales are not expected to be materially different, but profit before tax will exceed the previous guided GBP170m level. No new concrete guidance has been given. Based on our estimates for H2 and the reported H1 profits, profit before for FY21 should be closer to GBP230m.”