Fashion retailer Asos expects online demand to outlast pandemic

Asos, the online fashion retailer, said that better-than-expected first-half profits had boosted the company’s full-year outlook and predicted that more consumers would continue to shop on the web once the pandemic has faded.

The company, which has benefited from the closure of physical stores in Europe, expects online penetration “to remain structurally higher than pre Covid-19 levels” and said it would raise £500m via a bond sale to provide “additional flexibility”.

Asos reported on Thursday that pre-tax profit in the six months to the end of February was £106m, up from £30.5m last year and ahead of the £88m average of analysts’ forecasts.

The company said this would result in an increase in full-year profit compared with current forecasts of about £160m, but it is not changing its outlook for the second half of the year.

Analysts at Liberum said that despite prospering in the pandemic and making progress on cost reduction, the company’s revenue growth “has remained below the levels seen by peers Zalando and Boohoo”.

The group’s Aim-traded shares, which have staged a spectacular recovery over the past year, closed down 3.4 per cent to £55.90 on Thursday.

Asos has long been cautious about the possible economic impact of the pandemic on its mostly 20-something customer base and expects some “Covid tailwinds”, which added £48m to first-half profit, to ease as lockdowns are lifted.

The pandemic prompted a big shift in buying from “going-out” wear to clothes for wearing around the house, especially in the UK.

Such garments have lower gross margins, but customers are also less likely to send them back, resulting in better operating profits.

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Nick Beighton, chief executive, said there had already been an increase in website searches for going-out wear, especially in the US where more socialising is allowed.

The UK, where Asos has been active for more than two decades and where online penetration is already comparatively high, continued to outperform newer markets.

Sales there were up 39 per cent, more than twice the increases in the EU or the US. “We are always surprised on the upside on the UK,” said Beighton, adding that the focus in the medium term would be to extend the Asos brand in North America and Europe.

The company already has distribution facilities in both those regions and recently launched a “truly global retailer” initiative that aims to treat inventory in all three locations as one pool.

“We want to be able to have any product in any warehouse in any location available to any customer,” said Beighton.

Earlier this year, Asos agreed to acquire Topshop, the one-time jewel in Sir Philip Green’s retail empire, out of administration. It said that the one-off costs associated with integrating the company would be £10m this year, rather than the £20m originally forecast.

Some of the proceeds of a proposed £500m sale of five-year convertible bonds, announced after the market closed, will be used to refinance the acquisition.

The issue is expected to carry a coupon of 0.5-1 per cent and comes almost a year to the day after a share placing that raised £240m.


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