Demand for hip clothing from fashion-conscious 20-somethings living overseas helped retail sales at ASOS (ASC) rise 34 per cent to £352m in the half year, resulting in 11 per cent growth in underlying pre-tax profit to £25.6m. In fact, international retail sales now represent 61 per cent of the total, which explains why the online retailer has been investing heavily in operations outside the UK.
In particular, ASOS is spending money to expand in two of the biggest consumer markets in the world: China and Russia. But in contrast to its other overseas operations, the Chinese model will use a local third-party distribution centre, local delivery and have a larger multi-disciplined team in the country. The net operating cost of setting up the business there will be £4m to £6m a year in 2014 and 2015. Operations are due to start in October and will be loss-making in the first two years. Meanwhile, a Cyrillic website in Russia is on track to launch in May, with fulfilment taking place in the UK rather than in Russia.
Alongside news of its Russian and Chinese ventures, ASOS announced a £1.5m charge on a bonus plan for senior management, which requires the company to generate £1bn of sales and EPS of 73.7p in the financial year ending August 2015, rising to a 'stretch' target of £1.3bn of sales and EPS of 91.1p. Strip out the costs of the scheme, and underlying pre-tax profit would have risen 18 per cent.
In the six-month trading period, warehouse, labour and payroll costs improved, but were offset by higher distribution and marketing costs as ASOS invested in faster delivery and better service. This meant that the underlying operating margin fell from 8.8 per cent in the same period last year to only 7.1 per cent, below management's target level of 8 per cent.
Broker Canaccord Genuity expects full-year adjusted EPS of 51.6p in 2013, rising to 62.8p in 2014 (39.8p in 2012).
| ASOS (ASC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 3,167p | MARKET VALUE: | £2.61bn | |
| TOUCH: | 3,164-3,170p | 12-MONTH HIGH: | 3,453p | LOW: 1,419p |
| DIVIDEND YIELD: | nil | PE RATIO: | 77 | |
| NET ASSET VALUE: | 157p* | NET CASH: | £45.2m | |
| Half-year to 28 Feb | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 270 | 21.6 | 20.8 | nil |
| 2013 | 360 | 25.7 | 23.7 | nil |
| % change | +33 | +19 | +14 | - |
*Includes intangible assets of £27.6m, or 33p a share | ||||
