1st Apr 2015 08:05
LONDON (Alliance News) - ASOS PLC Wednesday reported an increase in revenue for the first half of its financial year after a "record Christmas season", but a drop in profit as its gross margin took a hit from price investments it is having to make.
The online fashion retailer reported a 10% drop in pretax profit for the six months to February 28 to GBP18 million from GBP20 million the year before, while revenue was up 14% to GBP550.5 million from GBP481.7 million.
It said that its gross margin fell by 230 basis points to 48.2% from 50.5% due to the launch of its zonal pricing strategy and planned investment in international prices, which together with increased investment in building its global distribution capacity led to a reduction in profit.
The retailer had previously been seeing its higher-margin overseas markets outperforming the UK, with international sales making up more than half of its total sales in previous years. However that figure had begun to reverse, with UK trading outperforming over the last few quarters, as the strong pound went against it, pushing up the price of its goods overseas. Its response was to cut prices overseas generally, and to introduce so-called zonal pricing, whereby it prices differently in countries like the UK, France and Australia.
The company said that UK retail sales were up 27% in the first half, compared with an international sales increase of 5% and that its active customers grew by 13%, exceeding the 9 million mark for the first time.
Chief Operations Officer Nick Beighton told reporters that ASOS had "extra fuel in its tank" for the first half of the year, having beat consensus figures with more profitability than expected. He said the company is "eyeing up" new opportunities to invest in price, and is currently running a free returns trial in the Netherlands which he said the customers are "responding brilliantly to".
Beighton said the gross margin decline is where the company had "intended" it to be, but expects it to improve to a 100 basis points decline by the end of the year.
"The golden rule is as soon as you invest in customers, they reward you with volume and frequency. We've always had that principle at ASOS and we'll continue to do this in the second half," he said.
The retailer is planning to invest GBP75 million in technology by the end of its next financial year after it introduced "zonal pricing" in Australia, France, Germany, Spain, Italy and the US in order to offer more competitive local pricing and to sell brands previously restricted in these territories.
It said that mobile device traffic now represents over 50% of all traffic and plans to expand its international mobile offering, having already launched locaIised versions of its Android and iOS apps in France, Germany, Italy, Spain and the US.
"Our recent investment in international prices has generated increasing momentum in visits and sales, and we expect this to continue during the second half of the year. We are confident of our outlook for the remainder of the financial year and expect profit before tax for the year to be in line with market expectations. We are pleased with progress in our investments in our warehousing and IT infrastructure, and we continue to focus on building capacity to reach our next staging post of GBP2.5 billion sales," Chief Executive Nick Robertson said in a statement.
The retailer said it has appointed Clifford Cohen as chief information officer, after Peter Collyer recently joined as people director. The group is also searching for a new chief financial officer and said it will update the market "in due course".
ASOS shares were trading up 6% at 3,845.00 pence Wednesday morning.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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