ASOS jumps as Q2 growth accelerates, but investments hit margins

12th Mar 2015 07:45

Shares in ASOS soared on Thursday morning after the online fashion retailer impressed investors with a strong acceleration in sales growth in the second quarter.ASOS, which describes itself as the "global fashion destination for 20-somethings", reported a 19% increase in retail sales in the three months to 28 February to £290.1m, helped by a pick-up in growth in both the UK and overseas. On a constant-currency basis, sales were up 22%.After 12% constant-currency growth in the first quarter, sales for the first half totalled £536.4m, up 17% over last year, helped by a 13% annual increase in active customers to 9.3m.UK retail sales jumped 30% year-on-year in the second quarter, while sales internationally rose 16%.Chief executive Nick Robertson said ASOS had seen "encouraging momentum in our international markets during the quarter [..] following the successful roll out of our zonal pricing capability and our planned price investments".He said: "Our investments in our warehouse and IT platforms are on track. We expect profit before tax for the full year to be in line with market expectations."On a less positive note, retail gross margins were down 320 basis points (bp) over the prior year in the second quarter.Analysts mixed about margin declineAnalysts at N+1 Singer said sales growth was strong but the toll on margins from recent investments was "significant"."The margin decline was c200bps in the first six weeks of Q2 but ended down 320bps, suggesting a c400bps decline in the latter period on the back of increased price investment (and mix). Despite an improving top line this needs to be monitored given rising costs," they said.In contrast, Shore Capital pointed out that weaker margins were partly a result of "zonal pricing" which is a positive step for ASOS in the long term."Given the significant currency exposure ASOS encounters as a global business, the additional agility zonal pricing gives the company in structuring its pricing proposition for international consumers and we believe this investment will help to support future growth momentum."The stock was up 12.8% at 3,698.2p by 08:22.