Profits down at Asos but e-tailer is upbeat as new strategies push sales up, share price rises

Profits down by 10% may not sound like the greatest news for a retailer to deliver but Asos’s investors didn’t seem to mind and sent its share price upwards Wednesday after the company delivered its half-year numbers.

Why were they happy? Well sales are continuing to rise, the company clearly recovered quickly from a disastrous warehouse fire last summer, a new pricing strategy may be denting margins but it’s also powering expansion internationally, and the firm is confident on profits and margins for the full year.

After a bleak year in which it had to contend with that fire and delivered three profit warnings, today’s results announcement details all add up to a huge shopping basket of good news.

So what are the details? Pre-tax profit for the six months to February 28 slipped to £18m ($26.5m) from £20.1m a year ago on costs related to the introduction of its zonal pricing and investment in distribution capacity, it said.

That zonal pricing allows it to adjust uncompetitive prices in international markets to boost sales and market share. It’s already having an effect in the Eurozone and Australia/New Zealand with further implementation set to roll out.

Revenue for the period rose 14% to £550.5m, in line with analysts’ view, boosted by an impressive 27% jump in UK sales combined with more modest 5% growth internationally.

Gross margins fell to 48.2% from 50.5% a year ago.

Asos said it had 9.3m active customers (3.7m in the UK and 5.6m internationally) at February 28, up 13% on prior year, and attracted 88m visits during February (3.2m in the UK and 5m abroad). It also added that customer engagement “remains high”, with growth in visits, average order frequency, average basket size and conversion all improving.

The retailer, which stocks over 75,000 lines across more than 750 brands, added 150 new brands in the period including Abercrombie & Fitch, adidas, Ellesse, Reebok, Sisley, Only & Sons and Liquor & Poker. It also removed 180 brands.

Uptake of its Asos Premier membership in the UK, US, France, Germany and Australia continued to grow, with total members up nearly 70% on last year, it said.

“With our continued investment in our international price competitiveness gaining traction, momentum in the business is building,” said chief executive Nick Robertson.

“This gives us confidence in the outlook for the second half and that full year profit and margin will be in line with expectations.”

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