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Asos H1 Net Dips 21%

Investment in the online retailer’s operating capability impacted its earnings.

LONDON — An uptick in investment in its logistics, information technology platform and expansion into China hit online retailer Asos’ bottom line in the six months to Feb. 28. The firm said Wednesday that net profits fell 21 percent during the half to 15.3 million pounds, or $24.8 million, compared with the same period last year.

Revenues in the half rose 33.9 percent to 481.7 million pounds, or $780.4 million.

All dollar figures have been calculated at average exchange for the period.

Over the half, Asos reported, operating expenses increased 45 percent to 223.1 million pounds, or $361.4 million, associated with increasing its warehousing capacity in the U.K., China and the U.S. In addition, the company invested in digital marketing and recruiting new employees.

The retailer also incurred net costs of 3.7 million pounds, or $5.9 million, in setting up Asos in China, and forecast that for the year to Aug. 31, its net investment in the business there will stand at 9 million pounds, or $14.6 million.

 

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As reported, Asos has forecast capital expenditure for the year of 68 million pounds, or $110.2 million.

The company noted that the investment back into the business is intended to “support our long-term future growth beyond sales of 1 billion pounds [$1.66 billion],” adding, “The global opportunity for our business is bigger than ever and these investments will accommodate future annual sales of at least 2.5 billion pounds [$4.16 billion].”

Nick Robertson, Asos’ chief executive officer, said, “[The] increased pace of investment has reduced our profitability in the period, but we will deliver significantly increased capacity as well as efficiencies in the longer term.”

Asos had detailed much of the news of its increased investment and sales forecast in a trading update March 18, so the figures didn’t surprise investors. Following the results Thursday, Asos’ shares closed up 1 percent to 52.06 pounds, or $86.70, on the London Stock Exchange.

In a research note Wednesday, Jamie Merriman at Bernstein Research said the firm believes that Asos’ investment strategy “makes sense, and will place the company in a stronger position as the accelerated capex spend will provide greater capacity than previously expected.”

In terms of territories, Asos said U.K. retail sales grew 32 percent to 182 million, or $294.8 million, over the half, with international retail sales up 35 percent to 290.3 million pounds, or $470.3 million. Sales in the U.S. performed strongly, rising 31 percent at actual exchange to 46.7 million pounds, or $75.7 million, while sales in Europe rose 65 percent to 127.6 million pounds, or $206.7 million.

Growth was slower in Asos’ rest-of-the-world territories as sales rose 14 percent to 115.9 million, or $187.8 million, with Russia and Australia affected by currency fluctuations, which Asos said “impact the competitiveness of our pricing in the local market.” To counteract this, the company plans to launch a local pricing function in May, which will allow the firm to offer “locally competitive pricing,” and to perform promotional activity relevant to specific markets.

Asos noted that customers responded to new categories and extended size ranges within its fall 2013 collections, and that its own label lingerie had seen growth. Its range of third-party brands, which include Jack Wills, Reiss and BCBG, grew 25 percent over the past year to number more than 75,000 lines.