Online fashion demand will outlast pandemic, says Asos

Online fashion retailer Asos said better than expected first-half profits had boosted the company's full-year outlook as it predicted more consumers will continue to shop on the web once the pandemic has faded.

The company, which has benefited from the closure of physical stores in Europe, expects online penetration "to remain structurally higher than pre Covid-19 levels", although acknowledging some customers will return to the high street.

Asos reported on Thursday that pre-tax profit in the six months to the end of February was £106 million (€122 million), up from £30.5 million last year and ahead of the £88 million average of analysts’ forecasts.

The company said this will result in an increase in full-year profit compared with current forecasts of about £160 million, but it is not changing its outlook for the second half of the year.

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Analysts at Liberum said despite prospering in the pandemic and making progress on cost reduction, the company’s revenue growth “has remained below the levels seen by peers Zalando and Boohoo”.

The group’s Aim-traded shares, which have staged a spectacular recovery over the past year, fell 1 per cent by lunchtime on Thursday.

Asos has long been cautious about the possible economic impact of the pandemic on its mostly 20-something customer base and expects some “Covid tailwinds”, which added £48 million to first-half profit, to ease as lockdowns are lifted.

Going-out wear

The pandemic prompted a big shift in buying from “going-out” wear to clothes for wearing around the house, especially in the UK.

Such garments have lower gross margins, but customers are also less likely to send them back, resulting in better operating profits.

Nick Beighton, chief executive, said there had already been an increase in website searches for going-out wear, especially in the US where more socialising is allowed.

The UK, where Asos has been active for more than two decades and where online penetration is already comparatively high, continued to outperform newer markets.

Sales there were up 39 per cent, more than twice the increases in the EU or the US. “We are always surprised on the upside on the UK,” said Beighton, adding that the focus in the medium term would be to extend the Asos brand in North America and Europe.

The company already has distribution facilities in both those regions and recently launched a “truly global retailer” initiative that aims to treat inventory in all three locations as one pool.

“We want to be able to have any product in any warehouse in any location available to any customer,” said Beighton.

Earlier this year, Asos agreed to acquire Topshop, the one-time jewel in Sir Philip Green’s retail empire, out of administration. It said the one-off costs associated with integrating the company would be £10 million this year, rather than the £20 million originally forecast.

Engagement with the brand had been strong in the US and Germany in particular, and the first Asos-produced garments are expected to be on sale in time for Black Friday in November.

Copyright The Financial Times Limited 2021