Asos announces growth plans to boost investor confidence

·3 min read
Asos announces growth plans to boost investor confidence
Asos reiterated its £7bn sales target over the next three to four years, with a margin on earnings before interest and tax of at least 4%. Photo: Justin Tallis/AFP via Getty

Online clothing retailer Asos (ASC.L) has forecast a profit margin of at least 8% over the long-term, as it aims to boost investor confidence in the wake of the abrupt exit of its chief executive.

At its capital markets day on Wednesday, the fashion retailer said it wants to double the size of its business in the European Union and the US, as well as improving partner brand availability, and extend its range into face and body products.

It reiterated its £7bn ($9.5bn) sales target over the medium-term, the next three to four years, with a margin on earnings before interest and tax of at least 4%. This reflects a compound annual growth rate of 15% to 20%.

The group also plans to support this initiative by building out its own-brand offerings to add £1bn to revenue, and embarking on cost saving efforts worth between £50m and £100m.

Read more: Halfords pushes higher on lifted profit guidance

Analysts at Jefferies said: “Set against the disappointing recent trading trend, market concerns over competition, and the 4% margin guide for the foreseeable future, we doubt management will get full credit for this yet.”

Asos shares, which have lost almost half of their value since the start of the year, were trading 3% higher on the back of the news.

ASOS shares. Chart: Yahoo Finance UK
Asos shares, which have lost almost half of their value since the start of the year, were trading 3% higher on Wednesday. Chart: Yahoo Finance UK

Last month, the company said that profit could fall by more than 40% amid supply chain pressures and global backlogs due to COVID-19.

It said sales growth would slow to a mid-single-digit percentage rate in the first half. It also said it expected a decline in adjusted pre-tax profit this fiscal year to between £110m and £140m.

Nick Beighton, who had been at the helm of the firm for six years, quit on the same day as the warning, after he and the board decided it was “the right time” for him to go.

However, according to insiders his sudden exit was not related to the profit warning. Beighton will be available until the end of the year for advice.

Read more: Asos shares plunge as CEO Nick Beighton steps down

Mat Dunn, finance chief, who has stepped up to lead day-to-day business as well as acting as COO, said on Wednesday: "Our plan will ensure that we fully leverage our strong, scalable global platform to deliver our ambitions.”

Laura Hoy, equity analyst at Hargreaves Lansdown said: “ASOS the fast fashion darling has lost its spot in the limelight and its attempt to show how it plans to take a leading role again have fallen flat.”

“The market was decidedly apathetic about ASOS’ grand plans. Although the growth targets are ambitious, it’s hard to get excited about online retailers these days. They’ve enjoyed goldilocks conditions over the past 18 months and a return to normalcy means higher return rates and less incentive to shop online. Add that to supply chain woes and it’s a recipe for near-term volatility.”

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