UK online fast fashion retailer Asos appears to be pulling through the coronavirus pandemic relatively unscathed as it booked higher sales in its third-quarter and offered an optimistic outlook for the full year. Analysts believe the group’s flexible business model and a “robust” momentum in the business put Asos in a good position moving forward.
Sofie Willmott, lead retail analyst at GlobalData
”As an online pureplay Asos has had a lot less problems to deal with than many of its store-operating competitors in recent months but despite this, it still primarily operates in the product sector that is expected to be the worst hit this year and as a fashion retailer, has weathered the outbreak well so far.
“Although other clothing and footwear players have reported stronger uplifts in online performance, this has largely been channel shift as their stores closed and overall their sales performance has been a lot worse than Asos’, with the fashion retailer’s sole channel affording it some protection as spend has transitioned online. H&M, for example, reported online sales rising 40% in the six months to 31 May 2020, however total group sales fell 22.9%. Close competitor, the Boohoo Group reported far higher growth (group revenue rose 44.6% for three months to 31 May 2020) prior to the allegations of slave labour, which have since knocked its market value down below Asos’.
“Without the burden of a store portfolio, Asos has been able to adjust its product offer focusing on key lockdown product categories in terms of inventory and marketing messages, and as a result achieved growth of almost 50% in casualwear, activewear and beauty. Although it would have expected pre-Covid-19 to rely more on other areas including dresses and fashion footwear, it has managed stock levels and is not writing off any inventory unlike M&S, which has written off GBP145m of spring/summer clothing that missed its opportunity to sell while stores were shuttered. Its tactical trading, alongside the removal of ‘non-strategic costs’ has boosted profitability and Asos expects full-year profits to be significantly higher than last year, also stating it will pay back previously claimed furlough support from the UK government.
“The outlook is not particularly bright for any fashion brand at the moment with the threat of a potential second wave, economic uncertainty and high unemployment, especially among Asos’ young target customer base. But Asos’ more flexible business model, its wide product range and its reputation as a fair retailer that has implemented measures to protect its staff and work with its suppliers through the pandemic, will afford it more protection than some of its competitors.”
Greg Lawless and Clive Black of ShoreCapital:
“Pureplay clothing retailer Asos has updated for trading for the four months to the end of June (Q3) which shows group revenues grew 10% in the period to GBP983m. At the time of the interims back in April (for the six months to end February) group revenues had grown 20% year-on-year, so the Q3 update shows a slowdown over the last four months, particularly in the UK and in the US reflecting the impact from product mix shift from the Covid-19 lockdown measures. The statement highlights a steady improvement during the period, so it will be interesting to understand the exit rate by geography from the quarter.
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By GlobalData“Not surprisingly, against a backdrop of continued social distancing, ongoing restrictions of events and an uncertain economic outlook, the company remains cautious on the short-medium term outlook. That said, the company expects FY20 profit before tax to be towards the top end of market expectations despite the headwind of incremental operating costs from Covid-19 measures. We will revisit our forecasts noting a wide range of outcomes in the FY2020 consensus forecasts. The company expects to be free cash flow positive in FY2020.
“The trading update highlights robust overall momentum in the business, albeit the UK and US performances in Q3 are a significant slowdown from the H1 run-rate.”
Richard Lim, CEO of Retail Economics:
“Social distancing measures and restrictions on gatherings have decimated demand for apparel. These figures show that even fashion retailers with the slickest online operations are reeling from the impact of the pandemic.
“While the furlough scheme has been a lifeline for many households, the 20 somethings have felt the pinch the hardest, which will impact some parts of the market more than others.
“As a new normal appears, consumers will gain greater conviction over their new needs and wants. For many, this will involve less physical interaction. Retailers will need to provide innovative digital solutions that appropriately support customers on a new, more digitalised, customer journey – from product awareness to service and returns.”
Aneesha Sherman, analyst at Bernstein Research:
“Overall, the group growth was very impressive at +10%, only slightly shy of last year’s comparable number at +11%. Asos is confident of turning a profit this year. Asos is reaping benefits from Covid-related cost-cutting and a favourable returns profile right now. Free cash flow is also expected to be positive, after three years of negative levels.”
