Asos shares dive 15% to lowest level this year despite sales increase

Ecommerce

Asos’ shares have divebombed by around 15 per cent despite the fashion retailer reporting a sales rise of 31 per cent.

This morning the fast fashion giant revealed global sales of £1.29 billion, driven largely by a 60 per cent rise in the UK to £526.4 million.

However, investors were spooked by warnings of “muted” sales over the past few weeks and expected “volatility” over the coming period.

While Asos said its expectations for the full year have not changed, it also warned that global supply chain disruption and increasing freight costs were squeezing margins.

Shares dropped from 4709p at yesterday’s close to lows of 3906p this morning, recovering slightly to 3990 throughout the day, though this was still around its lowest point this year.

READ MORE: Asos sales up 31% but bosses warn of Covid uncertainty

“There is a lot resting on sales regaining some of the lost ground, with the market clearly disappointed in the uncertainty pointed out in Asos’ trading statement,” Hargreaves Lansdown’s senior market analyst

“Next quarter will be crucial because it will give a better indication of the sales pace Asos can achieve in more normal times. By that point there should be even more clarity on social activity, and a clearer view of the shape of Asos’ future should come into focus.

“It’s possible that as customers become busier and not confined to their sofas, they’ll be scrolling the Asos app less frequently, and therefore purchase less. What these different dynamics will mean for the numbers over the medium term is yet to be seen.

“In some respects it looks like normality is already returning among Asos customers though, with returns rates climbing back to pre-pandemic levels. That’s not the best news, although it’s not unexpected. It will likely mean some dents to operating margins in the near term.”

Despite the sharp drop in share values, many believed Asos’ update was positive news demonstrating the retailer’s agility and ability to adapt to rapidly changing circumstances.

Publicis Sapient’s retail analyst Guy Elliott commented: “With regular promotions and an evolving product offering, Asos has reacted quickly in giving customers what they want, when they want it.

“While some of that joyful return to clothing shopping has gone back into stores, total retail sales are up significantly (total retail sales in May 2021 were 9.1 per cent higher than Feb 2020 pre-pandemic according to the ONS ) and online has taken the lion’s share of the increase (online clothing sales in May increased 46.6 per cent YoY),  ASOS has unsurprisingly been able to capitalise significantly on that growth, announcing a strong trading performance even in continually volatile times.

“Asos’ results demonstrate them doing a fantastic job capitalising on the shift to online shopping created by the pandemic, but more interesting is the recent deal they have done with Nordstroms – which gives an indication of the direction Asos sees for growth in the future, moving beyond online only and giving them physical presence for their brands, in this case Topshop, Topman, Miss Selfridge and HIIT, without the need to create their own physical stores.

“This move allows them to ‘dip their toe’ in the world of physical retail and test the waters before essentially taking the plunge into a channel that will forever be a critical part of retail.”

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