Asos sounds cautious note on consumer demand

Online fashion retailer Asos said lower costs, reduced capital spending and lower return rates helped full-year profits recover but warned on the outlook for consumer spending.

“We are cautious on the outlook for consumer demand, and will remain so until lifestyles and financial stability for our 20-something customers start to normalise,” the company said in a trading update on Wednesday.

Asos shares dropped more than 6 per cent after update.

It did not provide any forecasts for the year to August 2021 but said it expected “continued improvement in underlying profit” before any Covid-19 tailwinds.

Pre-tax profit for the year to August 2020 was £142m — within the £130m-£150m range forecast by the company two months ago and up from the £33m reported last year.

Sales were £3.26bn, up 19 per cent from last year and also in line with guidance.

The company removed £50m of what it termed “non-strategic cost” and lower return rates saved £45m. Capital spending of £115m was also lower than previously indicated.

However, investment will rise to £170m-£180m in the current year as Asos starts work on a fourth distribution centre that will gradually ramp up in time for peak trading in 2022. The company said it had “learnt a lot” from warehouse problems last year and that it was “confident” there would be no repeat.

By region, sales were up 18 per cent in the UK and 22 per cent in Europe. However, while US sales were up 25 per cent over the year, the second half was affected by lower levels of government financial support for young people and reduced air freight capacity that made shipping from the UK more costly. Sales in the rest of the world were also affected by the air freight issue.

Asos benefited from the temporary closure of clothing stores in many of the countries in which it operates, and was quick to pivot from its “going-out” wear to the casual wear favoured by those who found themselves working from home for extended periods.

It has not been alone; German rival Zalando has upgraded its forecasts three times this year and last week beat market expectations for the third quarter. Boohoo’s full-year results at the end of September were also ahead of expectations.

But neither can match Asos’s financial returns. The recovery from a series of mis-steps over warehouse expansion and pricing strategy in 2018 and early 2019 has resulted in its shares quintupling from their low point in April. It is the largest company on London’s junior market.


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