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Asos shares slip despite 22% sales growth

Discussion in 'Market News' started by Lily, Jan 14, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Company says margins fall after moves to resolve international pricing issues

    With several retailers issuing market-pleasing updates, one exception is Asos.

    The online fashion retailer is down 81p or 2.5% at £30.99 despite reporting a recovery in sales growth in the US and Europe following its moves to make its prices more responsive to exchange rate volatility after recent sterling strength. But this, along with increased competition, means the company’s margins are being depressed.

    Continued expansion of its zonal pricing tool helped to boost sales but continued to depress margins by 40 basis points.

    Asos is facing stiff competition at home from competitors such as Boohoo and the aggressive moves from Amazon into UK fashion retail. Low prices and fast fulfilment are now becoming common place across Asos core trading area of UK and Europe and is no longer sufficient in and of itself. Asos must focus investments on new forms of engagement and content to continue to connect with its core target consumer of “20 somethings”.

    The company is now of a meaningful size with sales forecast at over £1.3bn in 2016, has relatively strong cashflow and a ‘state of the art’ logistics infrastructure.

    Earnings, however, have declined over the last two years and although they are set to improve in the current year, the improvement in momentum, we believe, is priced into the stock. The departure of Nick Robertson as chief executive, who was the ‘guiding light’ of the business, is an added concern. The stock remains highly valued at 59.3 times our 2016 fully diluted earnings forecasts.

    In our view this was an exceptional performance, particularly given the continuation of the shift in stance towards full price, the unfavourable weather, and net currency headwinds. We leave our forecasts unchanged and retain our positive stance.

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