3Q19 Trading Update

UK fashion pure play ASOS announced a trading update for the four months ended June 30, 2019, equivalent to 3Q19, ahead of schedule as it issued its second sales and profit warning for the year.

ASOS grew total group revenues 11% year over year to £919.8 million on a constant-currency basis (up 12% year over year as reported), in line with growth in the previous quarter. The company’s total retail sales increased 11% year over year to £894.0 million on a constant-currency basis, comparable with growth in the last quarter. The company’s total orders grew 14% year over year to 24.8 million, compared to 15% growth in the previous quarter.

In terms of customer engagement, total visits increased 16% year over year, mainly driven by improved velocity in social media activity, and increased focus on relevant and inspirational video content. In June 2019, the company’s website attracted 200.9 million visits, compared to 169.1 million visits in June 2018. Active customers (who had shopped in the last 12 months as of June 30) increased 11% year over year and hit the 20 million mark, of which 6.3 million were UK-based customers and the remainder international.

By region, ASOS reported the following:

• UK: ASOS grew UK retail sales 16% year over year to £334.1 million, compared to 14% growth in the previous quarter.
• International: Total International retail sales increased 8% year over year to £559.9 million on at constant exchange rates (up 9% year over year as reported), compared to 9% growth in the previous quarter.

Within International, US retail sales grew 6% on a constant-currency basis (up 12% year over year as reported), compared to a 3% decline in the previous quarter. EU sales increased 3% on a constant-currency basis (up 5% year over year as reported), compared to 8% growth in the previous quarter. Rest of world sales grew 16% at constant exchange rates (up 14% year over year as reported) versus 21% growth reported in the previous quarter.

In the trading statement, CEO Nick Beighton commented that the company’s performance in the US and EU had been impacted by operational issues associated with its transformational warehouse programs in Berlin and Atlanta.

Beighton said:

The speed of ramp up in our Euro Hub automation and stock build within our US Hub has been behind our ambitious expectations. This has restricted product availability and range for our customers in these territories and we have seen a corresponding impact on sales as well as additional costs in support of transition.

Beighton expects these warehouse projects to be completed by the end of September and believes the move to a multi-site logistics infrastructure enhance efficiency longer-term.

Outlook

In the trading statement, Beighton commented that the company has already absorbed into its profit calculations the negative impact of higher transition costs and lost sales associated with the warehouse transformation issues. However, ASOS expects the inventory shortage in the EU and limited width in the US to impact its sales growth for the remainder of the financial year. Beighton believes the extra cost invested in making warehouses operational and efficient, along with organizational restructuring costs, will negatively impact overall profit.   

ASOS revised down its previously issued guidance for FY19 for the second time: It previously revised down sales and profit guidance in its 1Q19 trading update:

• Sales growth in line with performance year to date (11% growth on a constant currency basis and 13% as reported) versus the previous guidance of 15%.
• Retail gross margin contraction of about 250 basis points, compared to 150 basis points stated previously.
• Profit before tax of £30-35 million.
• Capital expenditure maintained at roughly £200 million.
• Net debt of about £100 million versus the previous guidance of £50 million.

In FY19, according to the consensus estimates recorded by StreetAccount, analysts expect ASOS to report revenues of £2.77 billion, up 14.6% year over year, and EPS of 49.1 pence.