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ASOS share price rallies despite profits plunging 87% after challenging year

The online fashion retailer recorded a major decline in profits in its half-year results on Wednesday due to a large capex programme which has given analysts a reason to be optimistic about its future.

ASOS saw its profits drop 87% to £4 million in the six months to February 28 compared to the same period in 2018 due to a major investment programme aimed at securing growth for the ailing online retailer.

The company is nearing the end of its capital expenditure programme (capex), which involved significant disruption and transition costs, but has providing the business with increased confidence that it continue to capture market share and restore profitability over the long-term, ASOS said.

The capex programme, which ASOS plans to wind down next year, added £22 million in extra costs in its first six months of trading for this financial year, but has helped the company increase its revenue and retail sales by 14% and 13% respectively.

ASOS results: key figures

ASOS saw UK sales rise by 16%, while international sales increased by 12% over the last six months of trading and despite the company suffering a major decline in profit it was able to keep its full-year guidance left unchanged, with EBIT forecast at circa 15% and EBIT margin of circa 2%.

ASOS CEO Nick Beighton admitted that despite increasing its sales by 14% in an increasingly competitive market, the business is ‘capable of a lot more’.

‘We have identified a number of things we can do better and are taking action accordingly,’ he said. ‘We are confident of an improved performance in the second half and are not changing our guidance for the year.’

ASOS invests for its future

The global online fashion market is worth more than £220 billion, with ASOS investing heavily in its business to ensure that it can capture a significant share of it.

‘We now have the tech platform, the infrastructure, a constant conversation with our growing customer base who love our own great product and the constantly evolving edit of brands we present to them,’ Beighton added.

‘We believe that ultimately there will only be a handful of companies with truly global scale in this market. We are determined that ASOS will be one of them,’ he added.

The combination of the retailer’s ongoing investment and strong market position that has helped its share price rally close to 10% on Wednesday, despite the business recording a 87% decline in earnings.

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