Monday, June 14

Fashion retailer Asos warns on outlook for consumer spending

Online fashion retailer Asos has said lower costs, reduced capital spending and lower return rates helped spur full-year profits but warned on the outlook for consumer spending.

“We are very mindful that the economic impacts of Covid-19 have not yet filtered through to the twenty-something audience,” said chief executive Nick Beighton. “We are worried about how unemployment may fall upon that audience.

“It is a very disruptive period for our customers and it could also be extremely promotional. We’ve set aside some flexibility to react to that.”

Asos shares dropped almost 10 per cent after his comments, which came as the group reported full-year results.

The company will shortly launch a new lower-priced own-label range, As You, in what Mr Beighton acknowledged was “a nod to the potential impact of recession on consumers”.

Much of the range will be made in the UK but with “Asos ethics and values”, he added — a reference to the recent controversy around rival Boohoo’s UK supply chain.

Asos said that if there were no trade deal and the UK moved to World Trade Organization tariffs, it would face £25m of additional costs this financial year.

Chief financial officer Mat Dunn said this did not include extra administration burdens “or other challenges that could accompany Brexit”.

No decisions have been made about how much of the burden to pass on, but Mr Dunn said that industry-wide he expected consumers “will end up bearing a chunk of the additional costs”.

Asos did not give forecasts for the year to August 2021 but said it expected “continued improvement in underlying profit” before any Covid-19 tailwinds.

Analysts at Liberum said the group’s comments implied pre-tax profit of at least £97m for the current year but added that its underlying revenue growth appeared to be below that of rivals Zalando and Boohoo.

Pre-tax profit for the year to August 2020 was £142m — within the £130m-£150m range forecast by the company two months ago and up from the £33m reported last year. Sales were £3.26bn, up 19 per cent from last year and also in line with guidance.

The company removed £50m of “non-strategic cost” and lower return rates saved £45m, although these are now reverting to more normal levels. Capital spending of £115m was also lower than previously indicated, and well below last year’s £195m.

Investment will rise to £170m-£180m in the current year as Asos starts work on a fourth distribution centre to help it meet demand from the UK and territories outside Europe and the US. The company said it had “learnt a lot” from warehouse problems in Europe and the US last year and that it was “confident” there would be no repeat.

By region, sales were 18 per cent higher year on year in the UK and 22 per cent in Europe. However, while US sales were up 25 per cent, they rose only 11 per cent in the second half amid lower levels of government financial support for young people and reduced air freight capacity.

Asos benefited from the temporary closure of clothing stores in many of the countries in which it operates, and like its rivals it was quick to pivot from “going-out” wear to the trend of “keyboard dressing” for Zoom calls.

That has prompted a spectacular revival in the group’s share price, which has quintupled since its lows in April and made Asos the largest company on London’s junior market.

Mr Beighton said that a move to the official list was “drawing closer”, citing the relatively high volatility of Aim-traded shares during the pandemic, but added that such a switch was not a high priority.

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