Investments see profit dip at British online retailer ASOS

Wednesday 02 April 2014 11.54
ASOS is currently worth more than four times the value of high street competitor Debenhams
ASOS is currently worth more than four times the value of high street competitor Debenhams

British online fashion retailer ASOS has said its long-term growth ambitions were as strong as ever, after it posted a 22% fall in first half profit that reflected a step-up in its investment programme.

ASOS, whose fast-changing fashions are a global hit with internet-savvy twenty-somethings, has been the great success story of British retailing since it floated at just 20p in 2001.

That compares with the price of £5.17p its shares traded at this morning.

"Fundamentally the story's still as strong as ever, the opportunity's probably stronger than ever," founder and Chief Executive Nick Robertson told Reuters.

"We are on line to hit our £1 billion of sales (target) this year (2013-14), which means we've got to grow at 30 odd percent for the second half. I'm comfortable with that."

Shares in ASOS, whose celebrity fans include United States First Lady Michelle Obama and British singer Rita Ora, fell 8% on 18 March when the firm reported that sales growth slowed in February.

It had also warned that faster investment in warehousing in Britain and Germany to give the firm a sales capacity of £2.5 billion, as well as start-up costs in China, would hit annual profit.

"We had to report the two-month period and it did show a softening of sales in February," said Robertson, who owns 9.3% of ASOS's equity.

"People then suddenly take that as the new run rate. Well, categorically that's not the case."

ASOS, whose shares are still up 54% over the last year, has a current market capitalisation of £4.3 billion - more than four times the value of Britain's 200 year-old Debenhams chain.

"Take a 12-year view of the shares as opposed to a two month view of the shares," said the CEO, the great grandson of tailor Austin Reed.

But its sky-high valuation has given it little margin for error. ASOS trades at 71.1 times analysts' 2013-14 earnings forecasts, according to Reuters data.

"The company is investing for long term growth, which is the right thing to do ... Our view remains that the cost of that growth is not fully priced in," said analysts at Liberum.