ASOS shares rally as results mark return to form

After impressive numbers, our head of markets asks whether this represents an inflection point.

After a woeful 2019 which included profit warnings and warehouse outages, investors were hoping that October’s full-year numbers marked a line in the sand.

Based on this update, the early indications are that this might be the case. 

While one quarter in isolation does not necessarily herald a new dawn, ASOS (LSE:ASC) has clearly enjoyed some respite, with retail sales growing by 20%, ahead of expectations and marking something of a return to form. 

The UK business, which accounts for nearly 40% of sales, saw growth of 18% and the US (13% of sales) was boosted by 23%. A record Black Friday and what the company describes as “strong customer engagement” has clearly underpinned this strength, while the previous operational issues did not rear their ugly head again in the period. 

Meanwhile, website visits increased 27% year-on-year in December, alongside a 15% hike in active customers. In terms of the latter, the international business has taken traction, with 15 million of the 21.7 million active customers emanating from abroad, and the balance of 6.7 million coming from the UK.

Source: TradingView Past performance is not a guide to future performance

However, given the previous year’s tribulations, investors remain wary. The period saw a deterioration of 1.7% in gross margin, driven by US duty and investment in customer acquisition and with the fillip of the end of year bonanza now having passed, perhaps the real heavy lifting starts now. 

Retailing, especially online, remains a fickle and ferociously competitive marketplace and any return to the company’s operational issues will be seized upon by the bears.

It remains to be seen whether this statement represents an inflection point. Not surprisingly, the shares have whipsawed in recent times. Even prior to today’s positive reaction to the news, the shares had added 39% over the last six months, but this was not enough to lift the shares over the last year as a whole, where the 1% decline compares to a 5.7% hike for the wider FTSE AIM 100. 

Indeed, over the last two years the shares remain down 56% and therefore there is much to do for ASOS to regain its status as a market darling.

ASOS has certainly impressed with this update, but the market consensus of the shares as a “hold” is likely to remain in place until the company can show that this performance represents a new trend, rather than a blip.