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Could ASOS shares maintain their upward trend after record interims?

ASOS posted interim performance figures on 8 April 2021, confirming record six-month figures with total sales and pre-tax profits rising significantly. Despite the encouraging data, why did ASOS shares fall? Will they rebound?

  • H1 2020/21 revenues up by 25% year-on-year (YoY)
  • Net debt of £163 million eradicated in last 12 months
  • Investments in 'Truly Global Retail' and automated fulfilment underway
  • Looking to trade ASOS shares? Open an account today

ASOS (ASOS.L) posted record interim results last week, buoyed by the surge towards e-commerce during the Covid-19 pandemic. Despite revenues of £1.9 billion and an adjusted pre-tax profit rising to £112 million in the six months to 28 February 2021, ASOS shares have fallen over 5% to prices of £52.40 on 12 April.

Why have exceptional interim results not boosted the ASOS share price?

Although the ASOS share price climbed in the days leading up to its 2020/21 first half (H1) interim update, the stock’s value retracted despite the published results.

The primary reason is the phased reopening of the UK economy. As high streets gradually start to reopen from the latest Covid-19 lockdown, concerns remain regarding the ability of e-commerce giants like ASOS and Boohoo (BOOH.L) to maintain their growth as some shoppers return to buying offline.

Within its interim update, ASOS also stated that it was investing more heavily in digital marketing. All of which could have an impact on medium-term profitability.

ASOS also alluded to its core demographic of millennial and gen Z shoppers, many of whom have been impacted personally by the economic uncertainty of the Covid-19 pandemic. Although disposable income may be constrained, ASOS’ outlook for H2 2020/21 is unchanged, while the H1 results have been sufficient to raise expectations for the full-year forecasts.

Will investments in global infrastructure and pricing maintain the competitiveness of ASOS?

ASOS has been one of the most consistent performers in the FTSE 100 since the onset of the Covid-19 crisis. The interim update confirmed that a better-than-expected H1 2020/21 enabled the company to move from net debt of £163 million to a cash surplus of £92 million. Furthermore, the embedding of the Arcadia retail brands purchased by ASOS (Topman, Topshop and Miss Selfridge to name but a few) is now expected to cost just £10 million compared with previous forecasts of £20 million.

With a cash surplus, ASOS has also sought to invest heavily in underpinning its growth worldwide, whilst improving operational efficiencies. ASOS has invested in its new truly global retail (TGR) programme. This merchandising and retail planning platform has already enabled ASOS to plan and launch new product ranges across its global fulfilment centres and set dynamic pricing structures across global markets.

Its TGR programme is in the process of being embedded within ASOS’ UK-based Lichfield fulfilment centre, while its US-based Atlanta fulfilment centre is slated to be fully automated by 2023.

Looking to buy or sell ASOS shares?

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Footnotes:

1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2 Deal three times or more in the previous month to qualify for our best rate.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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