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Relief as ASOS avoids another sales miss

by LLB Reporter
13th Jan 22 10:55 am

For years the market has become accustomed to ASOS delivering high levels of sales growth. Having gone through a tough patch pre-pandemic with warehouse problems in the US, more recently the company has found life harder again thanks to supply chain issues and rising costs.

A mere 5% sales growth in the last four months of calendar 2021 (in line with guidance) may not seem like a reason to set off celebratory fireworks. Yet it’s gone down well with investors who perhaps feared it wouldn’t even be able to achieve that level, particularly as rival Boohoo delivered nasty profit warning just before Christmas. The challenge now is to achieve stronger growth levels and put the company back on top.

“ASOS is passing on cost inflation to customers which helps to mitigate further margin erosion, having already suffered from shifting slow-moving stock at a discount and incurring extra logistics costs. Fortunately, consumers are getting used to higher costs across multiple industries, and so far, there doesn’t seem to be a large drop-off in demand because of affordability reasons,” said AJ Bell’s Russ Mould.

“Also benefiting ASOS is the fact that product return rates have normalised. Retailers have been battling a rise in returns which costs them lots of money, and so efforts are being taken in the industry to impose charges on returns to try and discourage customers from sending stuff back, or at least help to recoup the logistics costs.

“There is another bit of key news for the company. Once a posterchild for the AIM Market, ASOS is finally upping sticks and moving its stock listing to London’s Main Market. It means the company should qualify for a place in the FTSE 250 index later this year and benefit from index funds buying its stock.

“AIM has historically been a place for young growth companies. Once they start to become a much bigger business, it is only natural to shift listings to the Main Market which is more the domain of longer-established companies or businesses that have successfully disrupted a market and are now generating decent profits. ASOS certainly fits in the latter category.

“ASOS should have made the move years ago given how it has progressed from being a UK business selling goods mimicking those worn by celebrities on the TV or in films, to now being an international online retailer.”

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