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Asos reports sales up but profits down as it invests in future overseas growth

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Asos today reported retail sales up by 14% as the company enjoyed a record Christmas – but profits down by 20% as it introduced competitive pricing to international markets and invested in its global distribution capacity.

Customers visited more frequently and, on average, spent more money, helping UK sales to grow by 27% in the first half of its financial year, compared to the same time last year. But international sales grew by only 5% in the six months to February 28, reflecting the strength of the pound during the period. When currency fluctuations were discounted, international sales grew by 10%. Overall retail sales stood at £550.5m.

The fashion pureplay has looked to address those currency issues by introducing zonal pricing, which enables it to charge different, more competitive, prices in different parts of the world. Today it said profit margins had fallen by 230 base percentage points as a result. Asos’ pre-tax profits of £18m were down on the £20.1m reported at the same time last year. The figure, said chief executive Nick Robertson, also reflected investment in building distribution capacity around the world.

Robertson sounded positive that profits would continue to grow in future. “With our continued investment in our international price competitiveness gaining traction, momentum in the business is building,” he said. “This gives us confidence in the outlook for the second half and that full year profit and margin will be in line with expectations.”

Commenting on the figures, Stephen Mader, digital insights director at Kantar Retail, said: “ASOS is in a period of transition. It has grown significantly over the past years and now must put in place the automation, process, and tactics in order to scale that prior success into future margin heavy growth. With ASOS relatively exposed to foreign currency fluctuations, it is currently in a period of heavy backend investment to control how efficiently it can go to market.”

In his analysis, CityIndex’s Ken Odeluga said: “Make no mistake, I have warmed a great deal to ASOS CEO Nick Robertson and his long-standing management team, who more than proved their mettle during a horrendously challenging 2014 for the firm.

“And much of the delayed profit growth ASOS displays can partly be explained by continued recuperation and laudable investment in distribution, systems and other long-term advantages. However, such initiatives as the “continued investment in our international price competitiveness gaining traction” Robertson boasts of in today’s statement just bring me back to where my misgivings start.

“The impact from this ‘investment in price’ (cuts) in the half year was a 230 basis point gross margin contraction, with the increased investment in distribution capacity also weighing, though how much should be attributed to each factor isn’t made clear.

“But whilst Robertson looks past this softness, instead taking ‘confidence in the outlook for the second half’, the timeframe over which we should expect these sorts of initiatives and ASOS overall to show sustainable profitable growth remain valid questions.”

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