Asos Plc (ASC), the U.K.’s largest online-only fashion retailer, rose to a record in London trading after saying second-quarter sales growth accelerated as young U.K. shoppers sought out its budget-price fashions.
Total retail sales rose 37 percent to 186.5 million pounds ($281 million) in the three months ended Feb. 28, the London- based retailer said, faster than the median estimate of a 35 percent increase from five analysts compiled by Bloomberg. Asos’s growth was 30 percent in the first quarter. The retail gross margin fell 0.5 percentage point as the company sold more clothes than expected in the U.K., where it has a lower margin than internationally because of the burden of value-added tax.
Asos revenue has been buoyed by free worldwide delivery, in-country management teams in France, Germany and a focus on adding fashion content such as style blogs and fashion advice to its website to attract and retain viewers. The retailer said it expects the retail gross margin, a measure of profitability, to improve during the year as last year’s price investments aren’t repeated and it improves sourcing.
“With investment in new territories rising, and the U.K. lapping its price incentives, margins and growth should rise in the second half and beyond,” Wayne Brown, an analyst at Canaccord Genuity, said in a report. He upgraded his recommendation from neutral to buy.
Asos shares rose as much as 7.1 percent in early London trading to the highest intraday price on record and were up 6.5 percent at 3,314 pence at 8:55 a.m., bringing this year’s gain to 23 percent and giving the company a market value of 2.73 billion pounds.
“Our U.K. performance remained ahead of expectations” at 28 percent sales growth, “with particularly strong trading during the peak December period,” Chief Executive Officer Nick Robertson said in the statement. “We remain positive in our outlook for the year” through August.
While the market remains “challenging across the piece,” shoppers are starting to increase basket sizes again in the U.K. and its offering fewer discounts, Robertson said in a phone interview.
The executive ruled out another “step-change” in discounting like last year when it cut the price of its own- label ranges to lure shoppers. Still, Asos will be “forever tweaking” prices, he said.
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