The prolonged weakness in sterling following last year's EU referendum is working for and against fast fashion 'etailer' Asos (ASC). As a net exporter, the weak pound has allowed the company to lower international prices, which has helped reignite growth in markets such as Australia and Russia. But on home soil there are concerns about what the weak pound will do to the company's cost base and how the group will recover the potential impact on margins. UK retail gross margins were down 200 basis points to 42.6 per cent at the halfway stage, as the group continues to offer competitively low prices, and chief executive Nick Beighton admits exchange rates could cause further pressure as the year progresses.
The best news continues to be at the top line. UK retail sales rose by 18 per cent during the first half of the financial year, to £341m, but international sales rose by a whopping 42 per cent - even at constant currencies - to £548m. Mr Beighton said the intention was to keep prices low abroad and flat in the UK, despite a "more promotional market" at home and those inflationary pressures. Given the current momentum overseas, Asos is keen to press on with its international investment plans. These include new warehouses in Berlin and the US, and will result in capital expenditure in the region of £150m-£170m this year and next.
Mr Beighton also tried to downplay investors' concerns about working conditions at the group's Barnsley warehouse. Last year a BuzzFeed News investigation alleged that workers were under significant pressure to meet targets, which discouraged them from taking adequate toilet or water breaks. At the time, Asos rejected the portrayal. XPO, the distribution partner that runs Asos's Barnsley facility, recently recognised the Community Union in respect of the workers at the site, a decision Mr Beighton said he "fully supported". He said conditions at the warehouse were "great", having himself undertaken an eight-hour shift there, although improvements will continue to be made, including a new wellness and fitness centre for employees.
Analysts at Liberum expect adjusted pre-tax profits of £80.3m for the year ending August 2017, giving EPS of 76.6p (up from £63.8m and 61.8p in FY2016).
| ASOS (ASC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 5,866p | MARKET VALUE: | £4.89bn | |
| TOUCH: | 5,851-5,866p | 12-MONTH HIGH: | 6,130p | LOW: 3,191p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 129 | |
| NET ASSET VALUE: | 297p* | NET CASH: | £154m | |
| Half-year to 28 Feb | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2016 | 663 | 23.9 | 22.8 | nil |
| 2017 | 912 | 27.3 | 26.4 | nil |
| % change | +37 | +14 | +16 | - |
Ex-div: na Payment: na *Includes intangible assets of £144m, or 172p a share | ||||
