2nd Apr 2014 14:37
LONDON (Alliance News) - Online fashion retailer ASOS PLC Wednesday reported a drop in profits for the first half of the year, as it invested in doubling its sales capacity, and investing in pumping up the businesses presence abroad.
However, sales growth remained strong at the popular online clothing and accessories retailer, with retail sales in the first half rising by 34%.
"We are 14 years old in the UK, and it is still only in the UK that we have any meaningful market share. Internationally we are still small," said Robertson.
ASOS is pumping a large amount of money into its infrastructure, especially into IT and warehousing in the UK and Germany, as well as establishing a start-up in China, setting up distribution in the EU and expanding in the US, which Chief Executive Officer Nick Robertson says is costly but necessary for future growth. ASOS currently has four distribution centres in the UK, as well across the EU and now in Shanghai.
"Our GBP68 million investment during the current year will more than double the sales capacity with greatly enhanced efficiencies at our UK warehouse, a new Eurohub in Berlin, an expanded facility in Ohio in the US and a new warehouse in Shanghai," Robertson said.
ASOS's decision to push the accelerator on its investments this year, took investors and analysts by surprise last month, when it said in a trading update that sales slowed in February, and its margins this year would be hit by increased investment costs on warehousing in the UK and Germany, and on its start-up in China.
"February was just a blip," Robertson told journalists, adding "we are front weighting our investment... but we will always be about investing in potential."
Robertson said Wednesday that the group is pumping in investment now, ready for future growth, and he expects efficiencies to come through at the back end of next year.
"The sales capacity of GBP2.5 billion will do us for the next few years, until we will have to go again," he said.
The retailer said that it is expecting around 30% of full-year profit to be generated in the first-half, with the remaining 70% in the second-half of the year.
ASOS reported Wednesday a pretax profit of GBP20.1 million for the six months ended February 28, down 22% when compared with the GBP25.7 million reported a year earlier.
"This increased pace of investment has reduced our profitability in the period, but will deliver significantly increased capacity as well as efficiencies in the longer term. ASOS is not and has never been about the short-term; the scale of the global opportunity remains as exciting as ever and we are investing for the many opportunities ahead," said Robertson.
On the sales front, ASOS continues to perform strongly, reporting 35% growth in international retail sales in the first half to GBP290.3 million, with a 32% rise in UK retail sales to GBP182.0 million.
The retailer said that it was almost certain of hitting its GBP1 billion sales target this year, and also set a new target of GBP2.5 billion over the coming years, as it doubles capacity and all its current and upcoming investments pay off.
"We only need 27% growth in the second-half of the year to reach our GBP1 billion target this year," said Robertson.
ASOS said that international retail sales currently account for more than 60% of total retail sales.
"By the time we get to the GBP2.5 billion sales mark, I would be surprised if UK retail sales account for any more than 10%," said Robertson.
Overall, retail sales in the first half rose 34% to GBP472.3 million, up from GBP352.3 million the prior year, boosted by a 36% increase in active customers, totalling 8.2 million at February 28.
ASOS said that its fastest growing segment in the first half was the EU, driven by particularly strong growth in France and Germany, while its UK performance was boosted by a strong peak Christmas trading period, and it grew its market shares in the US.
However the retailer said that Australia was hit by adverse currency fluctuations throughout the period, while Russia held up fairly well despite forex headwinds, following improvements to its delivery proposition and targeted digital marketing activities.
Although ASOS said its margins this year would be hit by an acceleration in investment, the retailer said its retail gross margin increased by 60 basis points to 49.5% in the first-half of the year, up from 48.9%.
ASOS currently tailors the mix of own-label, global and local brands sold through nine local language websites in the UK, US, France, Germany, Spain, Italy, Australia, Russia and most recently China.
The retailer said that breaking into China was tougher than it thought it would be, and although it is currently just a start-up, it still sees great longer term potential in the market.
"China is a start-up. We are losing GBP9 million this year, we will lose less next year, and hopefully even less the year after that," said Robertson.
Robertson told journalists that although ASOS will not be investing in any more websites over the next six to 12 months, next in its wave of international sites will be Japan and Korea.
ASOS's target market is 20-something consumers, which means social media plays a key part in increasing brand awareness and winning sales, especially internationally. Robertson said that social media plays a huge part in sales for the online retailer.
The online retailer is yet to embark on a dividend policy, as it continues to pump money into the business using its cashflow, rather than paying out a dividend to its shareholders.
"There is no dividend, even though we could have [paid them] in the last few years, because we are busy writing cheques for investments," Robertson told journalists.
ASOS is currently the biggest company - in terms of market value - listed on the AIM All-Share index with a market capitalisation of GBP4.35 billion, considerably more than its closest rival for the top spot, mobile telecommunications group Monitise PLC, which sits in second place with a market cap of GBP1.37 billion.
Robertson has consistently reiterated that the retailer has no plans to move to the main market "any time soon."
ASOS shares were up 0.6% at 5,184.00 pence per share Wednesday afternoon.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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