21st Oct 2014 08:17
LONDON (Alliance News) - Online fashion retailer ASOS PLC Tuesday said it has started looking for a new chief financial officer after moving Nick Beighton to the role of chief operating officer, tasked with helping return it to growth after a couple of years where heavy investments in expansion and countering operational issues will hold it back.
The retailer reported a drop in pretax profit in its last financial year, as expected, due to heavy investments and a hit due to the strength of sterling. Chief Executive Nick Robertson also warned the company also faces another year of stunted growth.
The retailer, which has been hit by a growth slowdown after several years of rapid growth and expansion, said Beighton will add retail and international to his responsibilities in his new role, on top of his existing responsibilities for finance, IT, supply chain and logistics. ASOS said it began the search for a new CFO in the last month.
"Nick's expanded role will free up Nick Robertson, chief executive officer, to focus on the company's growth strategy, customer experience and marketing," the company said in a statement.
Robertson told journalists Tuesday that profit growth will be broadly flat over the next couple of years as its needs to invest in the business. He had previously said growth would be flat in the current year.
"This year [the current financial year] we will see flat growth, and a small increase the following year," said Robertson.
The retailer reported a pretax profit of GBP46.9 million for the financial year ended August 31, down 14% on its GBP54.7 million pretax profit it reported a year earlier.
"We are in a period of major investment that comes at a short term cost, but the medium-term benefits will be significant. As a result, we've had to manage a number of factors including disruption from significant investment in our warehousing, the launch of our new business in China, the strengthening of the pound and the fire at our Barnsley warehouse in June, all of which combined to reduce profits by 14%," said CEO Nick Robertson in the statement.
The company's full year gross margin was down 210 basis points.
However, revenue grew by 27% to GBP975.5 million, from GBP769.4 million, as UK retail sales grew by 35% and international sales grew 22%.
Analysts were expecting ASOS to report revenue of between GBP978 million and GBP997 million, and pretax profit of just over GBP44 million.
ASOS shares jumped 16.8% in early trading Tuesday, to 2,270.00 pence.
"Despite all that happened this year... our customer engagement was exceptionally strong, with highest ever average order frequency, conversion and average basket size, and we exited the year with 8.8 millon active customers, an increase of 25% over last year," said Robertson.
Last month, the retailer issued its second profit warning in just six months, stating that its pretax profit for the financial year just ended would be around GBP45 million, with profit growth stunted in 2015 too due to heavy investments.
Chief Executive Nick Robertson put the falling profits down to several factors - a shift in sales from overseas to the UK, a slowdown in international growth, sterling strength and heavy discounting.
The retailer also faced misfortune earlier this year, when a fire broke out at its warehouse in Barnsley, wiping off as much as GBP30 million of potential sales in the final quarter.
Besides higher promotional activity, more sales growth from the UK and Europe rather than higher-margin international markets such as Australia, Russia and Asia is also a problem for the retailer.
"We have seen a dramatic drop in overseas sales. Not just in Australia, Russia sales almost halved overnight... so we then had to move more stock, which we then had to clear, and discount," said Robertson.
ASOS said it is currently investing in pricing to bring back international sales, especially in Australia, where a strong British pound has pushed up the price of its goods. Robertson said it has been adjusting its pricing in Australia for the last three or four weeks, and will soon be tweaking prices in Germany and France.
"We just need to make sure that our pricing is right in each of the markets we operate in... allow us six months to a year to tweak pricing... can international go back to higher levels? I absolutely think its can," Robertson reassuring told journalists Tuesday.
In other overseas markets, ASOS said its had to spend more investing in its start-up in China than originally planned, due to delays in getting its products over there and pre-packing.
"It cost us an extra GBP3 million in handling and learning," said Robertson.
In the US, Robertson said it has a number of "structural issues" to iron out before pushing growth in that market.
"There are structural things we need to sort in the US before we can go. We have had to move some brands because the pricing is so different, shipping is expensive. Once that is sorted then we can spend more on marketing to drive sales growth. We can also buy stock in the US and sell it in the US - we need to think about that," said Robertson.
Analysts believe that while earnings in the short term will be hit by the step-up in investment required over the coming years to counter the appreciation of sterling, ASOS still offers a good long term growth story.
"We remain confident that the ASOS proposition - a targeted demographic, fashion credibility, quality own-brand, content, range of 3rd-party brands, and investment in delivery offer - is sufficiently differentiated to support significant long term profitable growth," analysts at Numis said in a recent note.
But while ASOS shares were one of the biggest gainers in the AIM All-Share index, not all analysts were impressed, with Cantor Fitzgerald saying it is worried that ASOS's 'damage limitation' strategy has weakened the company's entrepreneurial ethos.
"The company?s recent ?damage limitation? strategy has, we believe, impacted its entrepreneurial ethos and held back its evolution," says Cantor analyst Freddie George. "Indeed, even after the business has been put on an even-keel the current longer term earnings profile is likely to resort to a more pedestrian 10-15% per annum growth rate".
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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