Why online fashion firm Asos has seen sales jump but profits plunge

Asos caters for fashion conscious 20-somethings.

Online fashion giant Asos has seen a 13 per cent jump in sales to £2.73bn, although pretax profits plunged 68 per cent to just £33.1m in the year to August 31 in a year that has seen two profit warnings.

In total, 72.3 million orders were placed, with sales in the UK growing the most, up 15 per cent, followed by a 12 per cent rise in the EU and 9 per cent in the US. The rest of the world was up 12 per cent, the company said.

Asos chief executive Nick Beighton said the more significant problems of the last 12 months are now behind them.

He added: “This financial year was a pivotal period for Asos, where we have invested significantly and enhanced our global platform capability to drive our future growth.

“Regrettably this was more disruptive than we originally anticipated. However, having identified the root causes of our operational issues, we have made substantial progress over the last few months in resolving them. Whilst there remains lots of work to be done to get the business back on track, we are now in a more positive position to start the new financial year.”

Tom Stevenson, investment director at Fidelity Personal Investing’s share dealing service, said: “ASOS managed expectations well so that what investors saw on their screens this morning was bang in line with sharply reduced forecasts.

“The online fashion retailer has been caught in the vice of competitive price cuts and rising costs.

“Add in the traditional challenges of a small company trying to make it on the global stage and this year’s profits air-pocket was inevitable.

“Chief executive Nick Beighton candidly admits that ASOS underestimated the cost and complexity of becoming an international player.

“The surge in debts to around £90m should be high water mark for now as the investment in European and US distribution is now largely done. But the halcyon days when ASOS had the online fashion marketplace to itself are in the past. It will be a hard slog getting profits back to last year’s £100m.

“For investors it has been a roller-coaster ride. The shares have twice soared to £70 and returned to £20 or so. Bulls of the stock will hope it’s third time lucky but they have learned that this most volatile of AIM stocks has the potential to make and lose serious money for investors who time it wrong.

“With no dividend to smooth the ride and a punchy multiple of even the current year’s expected earnings recovery, ASOS remains an act of faith.”