ASOS profits hit due to supply chain crisis with revenue up 4%
ASOS revenues were up 4% in the six months to 28 February, at just over £2bn, in the face of industry wide supply chain challenges and ongoing Covid restrictions, a performance the UK-based online fashion giant described as "encouraging" and in line with guidance. However profits were hit by rising costs as it slipped to a reported pre-tax loss.
The rate of growth was a slow down from the 22% rate of growth achieved in the year to August 2021 as the business benefited from the lockdown of non-essential retail during the pandemic. When it posted its full-year results last year, the business cautioned that it expected the benefits to trade from the Covid period to cool off and for the supply chain challenges to continue well into this year.
During the latest six-month period ASOS posted adjusted profit before tax of £14.8m, which was down 87% but also in line with guidance, as the supply chain crisis led to higher freight costs and impacted the availability of new product. Gross margin was down from 45% to 43.1%. However the business posted a reported loss before tax of £15.8m, which it said reflected costs of adjusting items which totalled £30.6m.
In line with many businesses, ASOS has also suspended sales in Russia due to its invasion of Ukraine, a decision it announced in March, and revealed it was expecting a £14m hit as a result.
In the UK during the half year, sales were up 8% while the US posted growth of 11% but across the EU, where Covid restrictions are ongoing, the business achieved just 1% growth and the Rest of World, which was most impacted by supply chain and delivery issues, was down 10%. Overall the business added 300,000 new active customers during the period taking its total to 26.7m.
The Topshop brand, which was acquired in early 2021 following the collapse of the former Arcadia Group, achieved 193% growth and is said to have performed strongly in the UK, Germany and the US. The brand is central to ASOS's ambitions to grow in the US and it has struck a deal with department store chain Nordstrom to give Topshop and select ASOS brands a physical retail presence in the market.
There was no update on the search for a new CEO to replace Nick Beighton who departed in October, with CFO and COO Mat Dunn holding the reins of the business until an appointment is made. Responding to the results, Dunn said: "ASOS has delivered an encouraging trading performance, against the continuing backdrop of significant volatility and disruption. The team has acted with determination and pace and is making good early progress on the strategic plan for the next phase of growth, as set out at our CMD [Capital Markets Day] last year.
"While much remains to be done, we have a clear plan for each of the three key pillars – our platform, consumer offer, and international expansion – and are already seeing positive signs of progress across the business. We’re confident of the benefits these efforts will create and our continued ability to deliver.
“We’ve entered the second half of the year well placed, and believe that our stock position, with increased product availability and newness, will stand us in good stead. We remain mindful of the potential impact on demand from the growing pressures on consumer spend and will continue to be responsive to any changes in market conditions as we progress the work started in the first half to deliver on our ambitions.”
In terms of the anticipated performance during the second half, ASOS said it had seen a return to demand for holiday products, occasionwear (in particular bridesmaids dresses) and suits as workers return to the office. Suit sales were up 83% in the first half with 280,000 sold with 2.7m dresses sold across ASOS own brand, an average of 10 dresses a minute.
The business said it entered the second half with an improved stock profile, improved lead times and increased marketing to drive international sales. Apart from the removal of the contribution from Russia, its guidance for the year remains unchanged.