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Asos profits triple as it plans to invest in international growth

Online retailer reports phenomenal first half, but warns of headwinds ahead
Asos profits triple as it plans to invest in international growth
  • Asos has plenty of cash to invest, even after its landmark acquisition of Topshop this year
  • The company is wary of the economic impact that the past year could have on its customer base

Less than a decade before the collapse of Philip Green’s high-street empire in November, Topshop’s 90,000 square foot Oxford Street shop was still a go-to destination for fashion-hungry millennials.

Today, that flagship store is boarded up, and Topshop has been transformed in a matter of weeks into an online-only operation by Asos (ASC), the ecommerce retailer that acquired the brand from Green in February. 

There has been no clearer sign of e-commerce’s rapid takeover of UK retail – a story only underscored by Asos’ latest results.

The company reported today that in the six months to February, sales jumped by almost a quarter, to £1.98bn, as high-street rivals were forced to close their doors during lockdown. Profits before tax more than tripled, to £106m – already equivalent to 40 per cent of the price it paid to buy Topshop.

Even after that £266m acquisition, Asos is sitting on £92m in cash, albeit with hefty lease liabilities. It is planning to invest that money in expanding its international business, as it looks to become the “number-one destination for fashion-loving 20-somethings worldwide”.

Despite its success in the first six months, Asos said its outlook for the second half remains unchanged. It is wary of the economic impact the past year has likely had on its young customer base, and it expects the lower return rates that it recently benefited from to rise as coronavirus restrictions are eased; clothes bought for special occasions tend to be returned more often than casualwear.

FactSet consensus EPS for FY2021 is 142.4p, rising to 158.8p in the following year

Asos shares, which already looked pricey, have dropped slightly on release of its half-year figures. But the long-term direction for the business is up. Buy at 5,664p.

ASOS (ASC)    
ORD PRICE:5,664pMARKET VALUE:£ 5.65bn
TOUCH:5,656-5,664p12-MONTH HIGH:5,995pLOW: 1,752p
DIVIDEND YIELD:NILPE RATIO:31
NET ASSET VALUE:925p*NET DEBT:26%
Half-year to 28 FebTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20201.6030.127.6nil
20211.9810682.1nil
% change+23+253+197-
Ex-div:na   
Payment:na   
*Includes intangible assets of £637m, or 638p a share.  

Last IC View: Buy, 5,054p, 14 Oct 2020