ASOS profit obliterated by discounting

Dean Blake

11th Apr 2019

ASOS’s profit in the first half of FY19 was roughly one seventh of its profit for previous corresponding period.

The dramatic 87 per cent drop in profit from £29.9 million (A$54.71 million) to £4 million (A$7.32 million) came despite total sales increasing 13 per cent over the six months to February 28, 2019, to £1.28 billion (A$2.34 billion).

And while total orders placed grew by 15 per cent, and active customers increased 16 per cent, the average basket value fell 2 per cent.

ASOS chief executive Nick Beighton said the business was capable of much more.

“It’s certainly been a challenging six months for us and one of the most challenging we’ve seen in many years,” Beighton told analysts, according to Reuters.

“Economic uncertainty has undermined consumer confidence and during the period we saw exceptional levels of discounting.”

Beighton noted the business is at the tail-end of a major capex programme, which has involved transition costs but provides a greater ability to capture market share while restoring profitability.

“We now have the tech platform, the infrastructure, a constant conversation with our growing consumer base who love our own great product and the constantly evolving edit of brands we present to them,” Beighton said in a note to investors.

“We believe that ultimately there will only be a handful of companies with truly global scale in this market. We are determined that ASOS will be one of them.”

According to GlobalData senior retail analyst Sofie Willmott, the marketplace took its eye off the ball, but still continues to outperform competitors.

“ASOS has an engaged, loyal shopper base that its competitors can only dream of,” Willmott said.

“Despite the choice often feeling overwhelming, the retailer’s ability to offer a plethora of brands on one destination site has bolstered growth in H1, with third party brand revenues up 18 per cent.”

Comparatively, the brand’s private label ASOS Design label saw sales increase by only 5 per cent, accounting for 36 per cent of sales.

“ASOS must ensure its own ranges are a focus so that it can benefit from higher margins and also emphasise its unique selling point,” Willmott said. “Particularly when competitors such as Amazon and Next are ramping up their branded clothing offer.”

Despite the lacklustre results, Beighton said the brand would stick to its guidance for the full year – with sales expected to grow 15 per cent, EBIT 2 per cent, and end-of-year net debt to land at £50 million (A$91.48 million).

The business expects to return to a cash-positive position in FY20.