ASOS – Partner management to increase profit margins
ASOS is targeting £ 7 billion in sales over the next 3-4 years, with operating profit margins of at least 4%. This reflects a compound annual growth rate of 15-20%. The group plans to support this initiative by expanding its own-brand offerings to add £ 1bn to revenue, doubling the size of ASOS in the US and EU, increasing partner satisfaction to 5 % of merchandise volume and engage in cost reduction efforts worth £ 50-100million.
Longer term, the group plans to increase partner execution to 25% of merchandise volume. The growth of this higher margin part of the business, along with the maturing of international divisions and cost reduction efforts are expected to increase operating profit margins to at least 8% in the long run.
More information on Group Policy will be available on the group’s website later today.
Shares were broadly stable after the announcement
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Annual results (October 11, 2021)
Annual turnover rose 22% to £ 3.9 billion, reflecting the benefit of foreclosure restrictions on trade. Underlying profit before tax increased 36% to £ 193.6million.
Next year ASOS expects sales to increase by 10-15%, with mid single-digit growth in the first half of the year. This is because the group will exceed the exceptional demand seen this year, and supply chain issues will affect some of the availability of inventory. Profit before tax will be up to 43% lower due to higher transportation and labor costs and higher return rates.
CEO Nick Beighton is stepping down with immediate effect, after serving as CEO for six years. Mat Dunn, currently CFO, will take on the additional role of COO and “run the business day to day”, while a permanent successor is found.
Sales in the UK rose 36% to £ 1.7 billion, with a reduced churn rate and good growth in new customers. ASOS said the 1.4 million new customers are high quality – they’re engaged and more likely to come back than average. The average store was larger overall, but average selling prices were lower due to increased demand for casual wear.
Total sales of £ 1.2 billion in the EU rose 15% year-on-year, although this slowed to just 4% in the last quarter. As in other regions, average selling prices were lower. Shipping and Brexit issues meant inventory availability was low and ASOS could not meet increased demand in some markets.
Total sales in the we – which rose 21% to £ 466.2million – were helped by wholesale sales of Topshop brands. Global shipping and customs delays dragged down performance, but things are starting to improve.
There was a 3% increase in active customers in Rest of the world. Sales growth was most subdued in this region, increasing 6% to £ 607.0million.
The Group’s underlying operating margins increased to 5.3% from 4.6%.
ASOS was negatively impacted by increased inventory and adverse movements in working capital. Free cash flow was £ 35.9million, up from £ 258.5million last year, while net cash was £ 199.5million against £ 407.5million .
The group invested £ 286.4million in purchasing the Topshop brands during the year.
Next year, capital spending is expected to reach around £ 210million. This will be spent on warehouse automation and improving customer experience and data technology.
Highlights on ASOS
- Price / earnings ratio: 22.7
- 10-year average price / earnings ratio: 52.4
- Potential dividend yield (next 12 months): 0%
Remember that returns are variable and are not a reliable indicator of future income. Keep in mind that the key figures shouldn’t be considered in isolation – it’s important to understand the big picture.
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This article is original content from Hargreaves Lansdown, published by Hargreaves Lansdown. Unless otherwise stated, estimates, including potential returns, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Returns are variable and not guaranteed. The value of investments goes up and down, so investors could suffer a loss.
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