Why ASOS plc Jumped Today

Shares in online fashion retailer, ASOS plc (LSE: ASC) have jumped 16% in trading so far today, after the company posted results that were better than many analysts had expected.

Indeed, following what can only be described as a disastrous year for the company, ASOS reported a 27% rise in full-year sales and reiterated its outlook for the next few years. ASOS’s strongest market was the UK where sales expanded 35%, compared to 22% internationally.

However, the company did report a 14% decline in full-year pre-tax profit. A fire at the company’s Barnsley warehouse, a strong pound and a costly investment program were all cited as reasons for the fall. 

Change in fortunes

Nevertheless, even though ASOS has issued three profit warnings so far this year, today’s relatively upbeat results mark a change in fortunes for the company.

Along with today’s results, ASOS also announced that Nick Beighton, chief financial officer, will become chief operating officer with immediate effect. The group has already started a search for its new financial officer.

Commenting on today’s results, CEO Nick Robertson said:

“Despite all that happened this year, we still delivered 27% growth in sales, with the UK a standout performance at 35% growth. Our customer engagement was exceptionally strong … we exited the year with 8.8m active customers, an increase of 25% over last year …”

“… ASOS has always been about the longer journey to a very big prize: to be the world’s leading fashion destination for 20-somethings, and we are firmly focused on our next staging post of £2.5bn sales …”

Too early to buy?

Today’s full-year results from ASOS were better than many analysts had expected. However, now may not be the time to buy, as ASOS still has a long road ahead of it before the company can claim to have recovered from mistakes made over the past 12 months. 

Additionally, ASOS has warned that profit for the next year will remain unchanged, as the company invests heavily to boost its presence within China and other international markets. Still, while this spending will impact short-term profits, over the long-term these investments should pay off as ASOS will be able to provide a better service to customers. 

But, until then, it seems as if ASOS is going to have to work hard to convince investors that’s worth paying a premium for the company’s shares. For example, ASOS is currently trading at a forward P/E of 45, even though earnings are expected to stagnate over the next 12 months.

What’s more, there is ASOS’s relationship with suppliers to consider. Some suppliers have threatened to stop supplying the company unless it stops heavily discounting their products. ASOS has been aggressively discounting products in order to drive sales and draw customers away from rivals such as Boohoo.com, which have also been working hard to increase customer numbers. 

Only time will tell

So overall, ASOS’s full-year results reported today were better than expected. However, the company still has a long road ahead of it and needs to prove to investors that its shares are worth paying a premium for.