ASOS seeks growth here and seeks growth there
Most retailers would kill for a sales increase of 50 per cent but for ASOS this represents a rather disappointing performance as it has previously delivered regular 100 per cent rises. It is just as well therefore that it is starting to tap into new overseas markets where it is registering sales increases of a much more palatable 300 per cent. By Glynn Davis, City editorAt the company's recent preliminary results - for the 12 months to March 31 - ASOS management quickly highlighted that the go-go days of its regular 100 per cent increases were now over. Its comparatives are simply too tough to keep on beating.
During the most recent trading period, relating to the 13 weeks to June 26, it generated a sales increase of 52 per cent compared with the same period last year, which is much less than the 95 per cent increase achieved during the same period the previous year.
Having got that little shock out of the way ASOS was then quick to point out that its international business is going like a train with a 303 per cent increase over the past year. And the good news for investors is that overseas represents only 19 per cent of group sales (against 10 per cent last year) and the potential could be for it to account for 50 per cent of group turnover. It is now delivering to 57 countries, with the top performers being Ireland, Denmark, Sweden, France and the US.
It is certainly a good story because it is relatively easy (the company might say otherwise) for ASOS to leverage its assets to sell into overseas markets because it is as at present fulfilling all orders from the UK and has not yet developed country-specific non-English language websites. These will come and when they do they will enable the company to retain a greater margin and probably deliver better levels of customer service.
By switching the focus onto international markets when there is still lots to go for in the home market it could be argued that ASOS is rushing for growth with one eye on sating the appetite of City analysts, which could bring with it some execution risks.
But this arguably not the case because part of the beauty of the ASOS online-only model is the ability to scale-up extremely quickly. Without this is would be hard for Nick Robertson, chief executive of ASOS, to run a business that has clearly been on fire over the last few years (literally in the case of its former warehouse at Buncefield) and still seem pretty relaxed and able to find the time to get out and about at industry events.
The overseas push appears, on the outside at least, to have made little difference to the level of activity in the UK business because the company has over the past year initiated a myriad of changes including: increasing the product range by approaching 200 per cent to 24,700; launching ASOS Outlet, Designer brands at ASOS, Little ASOS; extending its own label ranges to include maternity wear and premium range ASOS Black; and investing in back-end systems with a new warehouse management system installed that will enhance delivery options.
Although it is clearly still a massively positive story, ASOS management did not fully offset analyst concerns over slowing domestic sales growth with the impressive international numbers and the shares fell from 388p before the prelims to 320p on July 13.
They have, however, since gained some of the lost ground to stand at 338p and the City view has now settled with the consensus being that ASOS is on an undemanding rating - analysts' price targets are typically around the 425p level. Consensus is far from being a guarantee of success in the future (quite the opposite in fact on many occasions) but in the case of ASOS the pack may just be right.
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