LONDON — Asos has seen a dramatic drop in its pre-tax profit for the first half, but remains positive it will get back on track by the end of the year.
According to the company’s latest trading update, pre-tax profits tumbled 87 percent to 4 million pounds for the six months to February, as opposed to 29.9 million pounds in the same period last year. On a net basis, however, Asos plunged deeply into the red, with a loss of 37.9 million pounds versus a net profit of 37.7 million pounds in the same period a year ago.
This follows a profit warning issued by Asos last December, after the company failed to increase sales by dropping prices to match those of rivals, including the likes of Missguided, Boohoo and Pretty Little Thing, which are all known for their low price points and trend-led collections.
However, the company said that it has managed to stabilize sales, which were up by 14 percent in total to 1.31 billion pounds from 1.16 billion pounds and it’s now better equipped to restore profitability.
“Asos is capable of a lot more. We have identified a number of things we can do better and are taking action accordingly. We are confident of an improved performance in the second half and are not changing our guidance for the year,” said Nick Beighton, the retailer’s chief executive officer.
“We are nearing the end of a major capex programme. Whilst this has inevitably involved significant disruption and transition costs, the global capability it now provides us gives us increased confidence in our ability to continue to capture market share. We now have the tech platform, the infrastructure and a constant conversation with our growing customer base. We believe that ultimately there will only be a handful of companies with truly global scale in this market and we are determined that Asos will be one of them,” he added.
Analysts added that given the company’s investment in logistics and technology, it was expected for operating profits to “drop off a cliff,” but with all major projects now completed, EBIT margins can be restored in the medium-term and investors should be reassured, as the retailer continues to remain competitive when it comes to customer engagement and product offer.
‘‘Despite U.K. sales growth slowing on last year, the online pureplay has continued to far outperform its competitors. ASOS delivered double-digit sales growth once again, enabling it to steal market share from players who are failing to excite shoppers such as New Look and the Arcadia brands,” said Sophie Willmott, senior retail analyst at Global Data. “Conversion and order frequency also improved, and with 21 percent of active U.K. customers signing up to Asos Premier [next-day deliveries], Asos has an engaged, loyal shopper base that its competitors can only dream of.”
Willmott added that the U.S. offers an attractive growth opportunity for the retailer, now that it has opened a new facility in Atlanta.