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10 Apr 2019 | 08:39

Asos profits slump on softer US sales, compressed margins

Asos reported a slump in first-half profits amid weaker US sales and compressed margins hurt by discounting and promotion activity. The online retailer, however, kept its forecasts for the full year unchanged. For the half year, pre-tax profits fell 87% to £4m and revenue increased 12% to 1.314bn. Total orders placed rose 15% to 34.4m for the half, from a year earlier.

Average Basket Value fell 2% in H1 year on year, driven mainly by a 3% decline in average selling price, which reflected the growth in lower price point high street brands and the elevated promotional environment, the company said.

The UK had a strong six months delivering sales growth of 16% which had been underpinned by improving behaviour from existing customers. EU sales grew 10% in constant currency, behind our initial plans, largely due to weakness in the German and French markets, the retailer said.

Within the US, constant currency sales growth was behind plan at 4%, as demand far exceeded our expectations and the Atlanta warehouse was not staffed to cope, the retailer added.

Rest of World sales grew 9% in constant currency with a much improved trajectory in Q2 with particularly strong performances in Russia and the Middle East.

Retail gross margin fell 60 basis points in the half with the substantial decline of 160 basis point in the first quarter due to 'the high level of discounting and promotional activity across the market being partially offset by stronger performance of 40 basis point for Q2,' the company said.

The company kept its guidance of c.-150bps on full-year margin unchanged as it vowed to drive through efficiencies to cut costs.

'We can achieve this through efficiencies across delivery, staffing and warehousing in each of our three key locations as current temporary transition costs fall away, underpinning our long term goal of reducing warehouse costs to c.8% of revenue,' the company said.

'We grew sales by 14% despite a more competitive market. 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, CEO.

'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 whilst restoring profitability and accelerating free cash flow generation.' At 8:39am: (LON:ASC) ASOS Plc share price was +132.5p at 3282.5p

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