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Asos outperforms over Christmas

After running into difficulty last year, management has put the group back on track
January 24, 2020

Asos (ASC) delivered revenue growth comfortably ahead of expectations for the four months to 31 December, confounding fears of slowing growth. Sales were up by a fifth, 550 basis points ahead of consensus forecasts. Management said that the performance was due primarily to a strong Black Friday weekend, boosted by improvements in product choice, availability and social media engagement.

IC TIP: Hold at 3,271p

Having long been an investor favourite, the online fast-fashion retailer was dogged in recent times by repeated profit warnings and a slowing growth rate, leading many – ourselves included – to reconsider its sky-high valuation. We had concerns over the group's slowing growth rate – with total revenues up 26 per cent in 2016, but just 13 per cent in 2019. Rival Boohoo's (BOO) sales, by comparison, soared by almost a half over the year to February 2019.

Alongside this, Asos suffered from growing pains as it worked to boost its international operations, with challenges integrating its 'Euro Hub' facility affecting stock availability in Berlin, and stock build in Atlanta proceeding slower than expected. 

However, management appears to have taken the hint. After reporting pre-tax profits down 68 per cent in the year to August 2019, Asos pledged to "strengthen organisational capability" – restructuring and adding to its executive team – while reducing costs. So far, so seemingly good; the latest trading update revealed that the EU and the US delivered sales growth of 22 per cent and 20 per cent, respectively, at constant currencies, while the group reported “robust operational performance” through all of its distribution centres during peak periods. The gross margin slipped 170 basis points, but this was due to expected investments in customer acquisition and US duty.