Asos growth slows but ups investment to target 2.5bn annual sales - UPDATE

18th Mar 2014 08:01

- Retail sales slowed to 26 per cent- Margin growth of 65bps- Increasing capex on warehousing and IT- Warns EBIT will be slowed by investment increaseSales growth in the first two months of the year slowed more than expected at online fashion retailer Asos, which warned that earnings margins would be dented by increased spending on warehousing and its new Chinese operations. Retail sales in the two months to the end of February increased 26%, down from 38% in the four months to December and 40% in the company's last financial year. While this was behind consensus analyst forecasts, sales for the last six months, being up 34% is ahead of the broker's predictions. Chief Executive Nick Robertson was bullish in his statement and said: "The group delivered strong sales and margin growth over the first six months of the year and we are now confident of achieving £1bn of sales in full year 2013/14 (FY14). We ended the period with 8.2m active customers, a 36% increase year-on-year."Retail sales for the two months to February were strong in all territories except Rest of World (Row) where we experienced adverse currency movements, notably in Australia and Russia."The effect on the RoW sales was a drop to 3% growth in the period, from 19% in the preceding four months. UK retail sales were 21%, softening from 37% in the previous months, while US sales strengthened from 28% to 31% and EU sales were fairly stable at 65%.Robertson said that the AIM-listed group had accelerated its investment in IT and warehousing from its previous guidance of £55m to at least £68m for the current year. "This investment will increase our sales capacity to circa £2.5bn per annum, over £1bn higher than previous guidance." In the medium term, the effect of this investment and dual running costs, together with ongoing investment in its China start-up, will reduce annual EBIT margin for the current financial year to circa 6.5%.Looking to the full year, house broker Numis lowered its full year profit forecast from £68.5m to £64.0m to reflect £5m of dual warehouse costs and a £2.5m increase in China start-up losses somewhat offset by an increase in our top-line estimate.Analysts at Jefferies called the increased capex a "bold statement of intent" and signified 2014 was going to be a year of investment, with the reiteration that China was genuinely a 'start up' and would take some time to build momentum.Jefferies wrote: "It seems that the company delivers on consensus expectations for the 2014 full-year still, but a growth bump driven by RoW clearly in the second quarter of 2014." And added: "The 2014 full-year represents an investment year of increasing scale and consensus will not be trounced a la the 2013 full-year."Shares in Asos fell 20% to 5,060p in early trading on Tuesday but recovered to 5,704p by 14:00.OH