Trading Update Sends Asos Shares Down 17%

The British online fashion retailer is expecting an increase in capital expenditure for the current year and is forecasting a reduced EBIT margin.


LONDON — While the British online fashion retailer Asos posted a 25.9 percent rise in group revenues in the two months ended February 28, to 139.2 million pounds, or $229.7 million, its increase in capital expenditure for the current year and forecast of a reduced EBIT margin drove shares of the retailer down 17 percent to 52.50 pounds, or $87.33, at the close of trading Tuesday.

Shares in Asos in London fell after the company revealed an increase in capital expenditure for the year to 68 million pounds, or $113.3 million, as a result of investment in warehousing in the U.K. and Germany and in IT. Investors were also muted on Asos chief executive officer Nick Robertson’s forecast that the firm’s investment in its China start up would reduce Asos’ EBIT margin for the year to August 31 to around 6.5 percent, and that the costs would be “disproportionately” reflected in the pre-tax profits in the first half of the year. Pre-tax profits for the year are expected to be split at around 30 percent in the first half and 70 percent in the second half. But Robertson noted in the statement that the investment in capital expenditure would increase Asos’s sales capacity to 2.5 billion pounds, or $4.16 billion a year. And he added that the company is “now confident of achieving 1 billion pounds [$1.67 billion] of sales in [full year] 2013/14.”

In a research note Tuesday, Cantor Fitzgerald called the update “disappointing,” saying that Asos’ sales in the U.K. and the rest of the world were below market expectations, only offset by “better than expected sales in the U.S.”

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But Asos’ capital expenditure had the support of analysts at Bernstein Research, who said in a note that the investment in its warehouses is “exactly what Asos should be doing to grow the business.”

In terms of the retailer’s sales, a strong performance in the U.S. and Europe drove retail sales growth during the two-month period. The firm’s retail sales for the period gained 26 percent to 136.7 million pounds, or $225.6 million, compared to the same period last year, though that figure fell nearly 5 percent short of analysts’ expectations, according to Bernstein Research.

Sales in Europe registered the strongest growth over the period, up 57 percent to 40.3 million pounds, or $66.5 million. Sales in the U.S. gained 41 percent to 14.5 million pounds, or $23.9 million during the two months, while U.K. retail sales rose 21 percent to 48.4 million pounds, or $79.9 million. Retail sales for the rest of the world grew only 3 percent to 33.5 million, or $55.3 million during the two months, which Robertson attributed to “adverse currency movements,” particularly in Australia and Russia.

Over the six months to February 28, Asos’ total group revenues rose 34 percent to 481.7 million pounds, or $780.4 million.

All dollar figures have been calculated at average exchange rates for the periods to which they refer.

Asos said that its retail gross margin was down 30 basis points in the two months to February 28, compared to the same period last year, but up 60 basis points over the half, compared to the previous year.

The company is set to announce its half-year results April 2.