Two months after acquiring a number of major British fashion brands in a February mega-deal, Asos reported adjusted pretax profit of 112.9 million pounds ($155.1 million) in the first half of 2020, a 275 percent jump over the 30.1 million pounds ($41.4 million) generated in the same period 12 months earlier.
During the half, revenues at the British e-commerce fashion giant grew 25 percent on a constant-currency basis to 1.98 billion pounds ($2.72 billion).
In a Nutshell: In line with the rest of the apparel and fashion industry, Asos highlighted that its product mix is continuing to shift away from occasion wear into casual wear. However, the company said that while it is satisfied with the speed and agility in ensuring relevant assortment and availability, the shift has been a headwind for its U.S. and ROW (rest of world) markets.
While the fashion retailer’s “Face + Body” beauty products category grew by a record 114 percent, top apparel category growth came from activewear (95 percent) and casual wear (69 percent). During the half, Asos added 120 brands to its platform, with many being “small, niche and on-trend,” reflecting the retailer’s focus on continued freshness and originality.
Within the company’s Venture Brands portfolio, Collusion broke into the top three women’s wear brands on the Asos platform, showing 93 percent growth year-over-year and a 70-basis-point (0.7 percentage point) mix growth within the portfolio. Resale brand Reclaimed Vintage saw 92 percent growth year-over-year, expanding its share of product mix by 30 basis points.
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In the half, Asos launched As You, a fashion-forward, lower-price-point product offering that is manufactured at speed and designed for flexibility. Since launch, Asos expanded the brand’s offering from 120 products to 600 products currently on offer and has sold over 200,000 units, the majority of which are jersey tops and casual bottoms.
The $452.3 million February acquisitions of the Topshop, Topman, Miss Selfridge and HIIT brands from Arcadia Group got off to a hot start, with a 226 percent increase in site traffic on the Feb. 22 “relaunch” of their e-commerce sites. Asos has seen “strong sales momentum” across these brands, all of which are geared to the company’s “20-something, fashion-loving consumers.”
The company is still in its “100-day plan” to integrate the brands completely and seamlessly into the Asos business, but as the former Arcadia brands’ stores closed, only 300 of the 2,500 staff members were retained.
Inventories have increased 19.4 percent with the addition of so many new brands, jumping to 694.6 million pounds ($955.7 million) in the first half of 2020 from 581.6 million pounds ($800.2 million) in the period the year prior.
In the six months to start the year, active customers have increased to 24.9 million, up 1.5 million in the period, which Asos defined as good growth despite “fewer event-led reasons for existing customers to shop.”
Increased freight costs due to Covid-19 disruption, foreign exchange movements and the continued “lockdown” category mix all contributed to a 200-basis-point (2-percentage-point) dip in gross margin year over year to 45 percent.
Asos closed the half in a net cash position of 92 million pounds ($126.5 million), with capital expenditures totaling 64.7 million pounds ($88.9 million, when factoring investments in the final stages of its Truly Global Retail (TGR) development, automation developments at its Berlin-based “Euro hub,” a new fourth fulfillment center in Lichfield, England, and additional projects across its technology platforms.
Like the name implies, the TGR system was launched on March 23 to replace Asos’ legacy technology infrastructure with planning and retail execution capabilities that support the retailer’s global growth ambitions. The Lichfield facility will initially go live as a manual facility with a total stockholding of 6 million units and will ultimately be automated in the second half of 2023. The automation will expand available capacity to 17 million units.
Asos also confirmed that the automation of its U.S. warehouse in Atlanta will be completed around the same time, which is projected to increase stock capacity by roughly 50 percent to 15.5 million units in total, with a warehouse throughput of 3.1 million units per week.
The retailer launched 18,300 new click-and-collect locations in the half to expand the total offering to 166,000 spots globally, and improved express delivery in 24 markets.
Additionally, more flexible fulfillment investments are being rolled out in two phases. In the first phase, Asos is rolling out unified stock availability enabling the retailer to optimize its offering across the U.K. and U.S., namely so that more brands from England can be shipped to U.S. consumers. The second phase, known as partner fulfillment, will enable suppliers to directly fulfill customer orders. Asos expects to begin the rollout of phase two at the end of the calendar year with a limited number of brands.
Expectations for the full 2021 year have increased in line with the company’s outperformance in the first half, but outlook for the second half remains unchanged.
Net Sales: Total first-half revenues at Asos were 1.98 billion pounds ($2.72 billion), a 24 percent increase over the first half of 2019, when the fashion retailer took in 1.6 billion pounds ($2.2 billion). Total retail sales, when not counting delivery receipts and third-party revenues, totaled 1.92 billion pounds ($2.64 billion), also a jump of 24 percent over the 1.55 billion ($2.13 billion) in the last year’s first half. Both revenue increases are adjusted to 25 percent when accounting for constant currency changes.
U.K.-based retail sales grew by 39 percent year-over-year to 800.4 million pounds ($1.1 billion), with activewear (121 percent growth) and casual wear (86 percent growth) giving apparel its biggest boost.
While the rest of Europe saw retail sales growth of 19 percent, the U.S. drove a 16 percent sales increase, primarily due to growth in casual wear and sneakers. Similarly, ROW grew 16 percent year over year, although it appears Israel was a major bright spot at 60 percent growth.
Net Earnings: For the first half, Asos said adjusted profit before tax of 112.9 million pounds ($155.1 million) in the first half of 2020, a 275 percent increase over the 30.1 million pounds ($41.4 million) generated in the half last year. Reported pretax profit of 106.4 million pounds ($146.2 million) for the six months ended Feb. 28, compared with the same 30.1 million ($41.4 million) pounds a year before.
The company identifying 48.5 million pounds ($66.6 million) of the profits as a “net Covid tailwind,” but it cautioned that the benefit was likely to disappear when restrictions were lifted on the hospitality and tourism sectors and consumers had more spending options.
Diluted earnings per share jumped 198 percent in the period to 81.9 pounds ($1.12) from 27.5 pence (38 cents).
CEO’s Take: Nick Beighton, CEO of Asos, said in a statement that he was “delighted” with what he called an exceptional first-half performance, but remained cautious of the future.
“Looking ahead, while we are mindful of the short-term uncertainty and potential economic consequences of the continuing pandemic, we are confident in the momentum we have built, and excited about delivering on our ambition of being the number one destination for fashion-loving 20-somethings,” said Beighton.