Asos speeding up

A trading update from Asos (ASC) this month revealed that the online fashion retailer has continued to defy economic gloom. Third-quarter retail sales grew 45 per cent year on year to £194m - that followed a 34 per cent retail sales hike at the half-year stage and leaves the group on track to meet full-year expectations.

Third-quarter UK sales increased by 39 per cent and international expansion is going to plan, too. Overseas retail sales grew 48 per cent, compared with the same quarter last year, and now generate two-thirds of group sales. In particular, there has been stronger growth in countries with dedicated websites and in-country teams, notably the US, France, Germany and Australia - that supports management's view that investment in individual markets pays off. Sales in Europe, meanwhile, grew by 56 per cent and by 59 per cent in the US. A dedicated Russian website was also launched on 1 May. The retail gross margin improved by 10 basis points, too, and management expects a further improvement for the full year - which implies that a significant uplift in the fourth quarter is on the cards. Encouragingly, average basket sizes and order frequency were up in all markets.

Espirito Santo Investment Bank says…

Sell. Sales performance has been strong across the board, but the UK stands out. The acceleration suggests that Asos's initiatives on pricing, product, delivery and digital marketing are working well. Given the sales momentum, it's hard not to see some upside risk to consensus forecasts - although we do expect further pressure on the gross margin and operating costs. Nevertheless, the share price seemingly remains correlated with sales momentum rather than earnings upgrade momentum. But, in our view, the shares trade on a hard-to-justify 77 times 2013's forecast earnings, dropping to 61 times for 2014. We maintain a sell stance.

Peel Hunt says…

Buy. There was strong momentum in all markets, and a stunning quarter for the UK, as the offer and price architecture continue to hit the consumer sweet spot. Increased marketing investment is delivering clear results and international investment is paying off. While we expect the rate of sales growth to slow in the fourth quarter, the relentless pace of initiatives continues to drive the business. With the Middle East, South America and northern Europe all potentially future strategic markets, medium-term sales performance is likely to outperform market expectations. We expect operating margins to remain subdued over the next three to five years, although longer-term potential remains significant. Expect pre-tax profit of £52.5m for 2013, giving EPS of 47.7p - our price target stands at 4,500p.