Asos lifts profit forecast after strong third quarter

British online clothing retailer Asos said demand for cut-price fashions abroad and strong trading at home meant annual sales growth would hit the top of forecasts, with profits also expected to edge up.

Asos, which counts US First Lady Michelle Obama among its fans, forecast on Tuesday full-year sales at the higher end of its 15-20 per cent growth range and a pretax profit of £47 million (€66 million), up from £45 million previously.

The group said the rise in profit, up from £43.9 million last year, was due to brighter prospects for gross margins, which are now seen flat to down 30 basis points versus a previously forecast fall of up to 100 basis points.

Price cuts are being offset by tight inventory control and stronger full-price sales, it said.

Asos, recovering from a run of profit warnings in 2014, said retail sales for the four months to June 30th, its fiscal third quarter, rose 20 per cent, in line with analyst expectations, with gross margins up strongly.

UK revenue rose 27 per cent, while overseas sales – worth 59 per cent of total sales – were up by 16 per cent, benefiting from a zonal pricing system that allows the firm to charge prices country by country to reflect fluctuating exchange rates.

Until last year, Asos had been the success story of British retail firms and a darling of the stock market, helped by its appeal to Internet savvy people in their 20s.

Slowing sales, increased investment, expansion in new markets and a big depot fire hurt profits but in a sign of improvement, active customers at the end of June were up 11 per cent year on year to £9.7 million.

In May, Europe's largest dedicated online fashion retailer Zalando lifted its forecast for sales and profit growth for 2015 after a strong first quarter.

Shares in Asos, up 21 per cent on a year ago, were flat in early trade.

The company’s operating margin is expected to remain at the guided level of 4 per cent, reflecting recent investments which also include a free returns trial.