Online fashion retailer Asos has raised its full-year sales and profit expectations on the back of stronger than anticipated underlying demand and a sustained reduction in returns rates.
In a pre-close trading statement today (12 August), Asos said sales and profit for the full year are now expected to be significantly ahead of market expectations. Revenue growth is forecast between 17% and 19% with profit before tax in the region of GBP130m-GBP150m (US$195.4m).
“We had expected to see underlying returns normalise once lockdown measures eased and customers were both able to ship returns and felt more comfortable doing so. However, in recent weeks, we have gained better visibility on this pattern in customer behaviour as we have progressed through the returns cycle and it has become evident that returns are not increasing at the rate we originally anticipated,” the retailer said.
As a result, it has seen a significant and sustained reduction in returns rates since April, which it said reflects, in part, customer demand for lockdown categories, such as activewear and face and body.
“However, rates have been further suppressed below estimated levels by a prolonged shift in customer behaviour towards more deliberate purchasing across all product categories, even when sales momentum has improved,” it added.
Looking forward, Asos noted the consumer and economic outlook remains uncertain and it is unclear how long the current favourable shopping behaviour will persist.
While it expects to deliver full-year sales and profit before tax ahead of market expectations, it said the extent of this outperformance and any impact beyond this financial year will be driven by how customer shopping behaviour normalises.
“The second half has been a period of tremendous change for Asos, we have made real progress and shown resilience through the period and are exiting the year in a strong position. We have a robust balance sheet, with a differentiated product offer and global infrastructure to leverage. Against this backdrop we have increased confidence that Asos will continue to progress as one of the few truly global leaders in fashion retail.”
Shining through the retail doom and gloom
Sofie Willmott, lead analyst at data and analytics company GlobalData, notes while many other clothing retailers have announced significant sales drops since Covid-19 hit, alongside store closures and redundancies, Asos has benefitted from its quick response to the pandemic, pivoting its product offer and reaping the rewards.
“Sales for its financial year to the end of August are now forecast to be 17-19% higher than last year, far outperforming the UK clothing and footwear market which is set to decline 28.1% in 2020, with Asos sweeping up market share from its competitors. Asos’ share price rose 10% this morning and is now back to its highest level since late 2018 demonstrating investors’ confidence in the future of the business, despite it being a mature online player.”
Willmott adds store-operating clothing and footwear retailers have had numerous unforeseen problems to contend with over the last few months but notes without the hindrance of physical locations, Asos has been able to focus on marketing and stocking its most relevant lockdown products such as sportswear, loungewear and beauty.
“Although it is traditionally more reliant on other categories such as dresses and high summer clothing for holidays at this time of year, Asos’ broad product range has enabled it to continue providing what its customers want, despite preferences shifting dramatically in recent months.”
In addition, she says the retailer has benefitted from more intentional purchases since the pandemic with returns rates reduced, positively impacting its sales and profit expectations, however it is unlikely that this pattern will continue into next year as shoppers’ lives start to get back to normal.
“As weddings and holidays will be back on the agenda in 2021, Asos is likely to see its young, tech-savvy customers go back to their ways and buy more items to choose from at home, before returning a significant proportion of their order.”
Greg Lawless, analyst at Shore Capital, adds: “The company has a strong balance sheet, having raised GBP240m through an equity raise back in April. This together with momentum and the opportunity to leverage its global infrastructure leaves it well placed to fulfil its ambition to be a global leader in fashion.”
Last month, Asos reported a 10% rise in retail sales for the third quarter to GBP983.3m. In the four months ended 30 June, total group revenue, which includes retail sales, delivery receipts and third-party revenues reached GBP1.01bn.
Meanwhile, brands stocked by Asos with a UK manufacturing presence have been asked by the online fashion retailer to make four new ethical manufacturing commitments as a condition to their products being sold on the company’s website.