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Asos shares fall on higher sales and investment, but lower profits

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Asos today reported sales up by a quarter in the first two months of its financial year. But markets took fright as chief executive Nick Robertson said that heavy investment in warehousing and the company’s business in China would hit profits. Its shares fell by 20% at one point but at the time of writing had recovered to a fall of 14% at 5,412p, 914p down on the previous day’s close.

The online fashion trader said total retail sales had lifted by 26% in the eight weeks to February 28. The UK continues to be the online fashion retailer’s largest market, with sales up by 21% to £48.3m, while the fastest growth was seen in the EU, with sales up by 57% at £40.3m. Total international sales lifted by 29% to £88.3m, and accounted for 64% of all sales.

In the six months to February 28 total retail sales lifted by 34% to £472.3m, and group revenues by 34% to £481.7m. Within that, UK retail sales were up by 32% at £182.0m, and international up by 35% at £290.3m.

Nick Robertson, chief executive, said the first half of the year had been one of major investment. At least £68m will be spent on capital investment including warehousing in the UK and Germany and in its China start-up in the current year. That’s up from the £55m previously expected and, warned Robertson, will hit profitability at the company in the current financial year, with 30% of this year’s annual profits expected to be made in the first half, and 70% in the second half.

Investment in warehousing, Robertson said, “as well as the investment in our China start-up, will reduce our EBIT (earnings before interest and taxes) for the current financial year to 31 August 2014 to c. 6.5%.”

The company launched a website in China in November.

Our view: Asos wasn’t the only falling share on the stockmarket today. Also down were stocks in multichannel and online retailers including Ocado , Next , and the recently floated and . The market has taken fright, it appears, at the fact that retailers whose growth has been fuelled by online sales don’t just grow regardless. They must also invest, and that costs money, even without the shops.

Such are the facts of business life: the stockmarket is famously short-term but such events should not restrain retailers from the investment that’s necessary for long-term growth. It’s clear that those who offer customers the chance to buy the products they want to buy in the way that they want to buy them will ultimately be more profitable.

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