Analysts offer their views on Asos results

Analysts offer their views on Asos' results

Online apparel retailer Asos this morning (21 October) booked a mixed set of full-year results as sales soared but profits fell due to a combination of factors including a strong pound, operational investments and the impact of a fire at its main warehouse. 

Conlumino’s senior fashion consultant, Anusha Couttigane:
"As we outlined in our last viewpoint, this has been a trying year for fashion favourite Asos, which, during a period of critical long-term investment, had to overcome the disaster of a fire at its main UK distribution warehouse in Barnsley. This, combined with the rising strength of the pound – an issue which has set alarm bells ringing for many retailers with international businesses – has significantly squeezed profits at the e-commerce trailblazer.

"As it stands, its domestic UK market and the more local European arena have remained hero territories for Asos, being the only divisions to drive higher year-on-year profits. Sales growth in the UK alone was a standout 35%. However, these areas too have been hit higher costs of sales. CEO Nick Robertson is keen to point out the long term ambitions of the retailer. Yet the way things stand, it is clear that some investors are growing impatient. With Asos’ share value halving over the course of the year, it is evident that confidence in the retailer’s ability to generate a fast turnaround is mixed."

Bernstein analyst Jamie Merriman:
"We believe investors will be encouraged by these results given that guidance has been held and the company has suggested good progress on operational initiatives. We believe once zonal pricing is launched, investor attention will turn to volume growth as a leading indicator of sales growth reacceleration. 

"We continue to believe that there is a long path of sales and earnings growth ahead for Asos. Though technology implementation and execution have been disappointing thus far in 2014, and uncertainty about the timing of the final roll out of zonal pricing remains, we believe that it can be done. With a strong customer proposition, continued double digit growth in the UK which is Asos' most mature market, and a plan to correct pricing in the next 12-18 months, we expect volume recovery will provide a catalyst for the shares."

Cantor Fitzgerald analyst Freddie George:
"There will, we believe, inevitably continue to be questions over the robustness of the company’s model, particularly its development strategy overseas after the recent revision to FY15 sales forecasts in international across the US and Europe. More worrying perhaps, the company’s recent ‘damage limitation’ strategy has, we believe, impacted the its entrepreneurial ethos and held back its evolution. Indeed, even after the business has been put on an even-keel the current longer term earnings profile is likely to resort to a more pedestrian 10-15% pa growth rate."