Apr 1, 2015
Reading time
2 minutes
Download the article
Click here to print
Text size
aA+ aA-

ASOS says lower price strategy is working

Apr 1, 2015

British online fashion retailer ASOS said on Wednesday its strategy of cutting prices in international markets to reverse a slowdown in sales growth was building momentum after three profit warnings last year.

Although ASOS posted a 10 percent fall in first-half profit, it exceeded analyst forecasts and the firm said it was confident of hitting profit expectations for its 2014/15 financial year, sending its shares up to 9 percent higher.

Until last year ASOS had been the success story of British retail firms and a darling of the stock market, helped by its appeal to Internet savvy people in their 20s and high-profile fans such as British singer Rita Ora and U.S. First Lady Michelle Obama.

Having floated at 20 pence in 2001, ASOS shares hit a high of 71.95 pounds in February 2014. Though the stock has fallen by a quarter over the last year, trading at 39.41 pounds at 0934 GMT, the firm still has a market capitalisation of 3.2 billion pounds ($4.7 billion), or more than three times the value of high street stalwart Debenhams.

ASOS said it made a pretax profit of 18 million pounds in the six months to Feb. 28, ahead of analysts' average forecast of 16.3 million pounds but down from 20.1 million pounds made in the same period a year earlier.

ASOS's international price cuts resulted in a gross margin decrease of 230 basis points. That, and increased investment in infrastructure, such as an automation programme at its huge warehouse in Barnsley, northern England, ate into profits.

The price cuts are helping to counter the impact of the large drop in the value of the euro against sterling.

ASOS's first-half retail sales rose 17 percent on a constant currency basis to 536.4 million pounds, with UK sales up 27 percent and international sales up 10 percent.

"This investment programme, this sort of two-year journey of price investment, seems to be delivering positive results in our international sales performance," CEO Nick Robertson told reporters. "We feel we're building momentum."

Analysts are on average forecasting a 2014-15 pretax profit of 45 million pounds, according to Reuters data, down slightly from 47 million pounds in 2013-14. But the firm still has its doubters.

"We continue to have question marks ... over the robustness of the model and believe the company will have to continue to discount and offer free delivery charges and returns to maintain sales momentum," said Cantor Fitzgerald analyst Freddie George.

Robertson said ASOS' next "staging post" will be 2.5 billion pounds of annual sales, though he declined to say when the firm would reach it.
"Ultimately the business is going to be considerably bigger than it is today," he said.

£1 = $1.48

© Thomson Reuters 2022 All rights reserved.