Founding director at ASOS (LSE: ASC) Nick Robertson is quitting his role as Chief Executive. Should we panic, run for the hills, and dump our shares in ASOS as fast as we dispatch yesterday’s socks?
Of course, not. Not for that reason, anyway.
Continuity
After 15 years in his role at the top of the company he helped found, Mr Robertson clearly wants an easier life. Who can blame him? Under his leadership, the firm is realising his and the other founding directors’ vision to build ASOS into the world’s number-one online fashion destination for the twenty-somethings.
Growth has been breath-taking. During 2014, just 14 years after the firm’s establishment, ASOS posted revenue of £975.5 million, up 27% on the year before. In the four months to 30 June 2015 sales are up 20% compared to the year-ago figure, suggesting the growth story still cruises in the fast lane.
Mr Robertson is rich, successful and vindicated. After 15 years in what is no-doubt a high-pressure position, is there any wonder that he wants to step down? However, not all is lost for ASOS shareholders, as the former chief intends to keep his services available to the firm in a new role as a non-executive director. That should provide useful continuity to help the new man bed into the role of chief executive.
The new chief is Nick Beighton, the former chief operating officer and, before that, the chief finance officer. He’s been with the firm for around six years and his appointment to the top job now is reassuring for investors.
Watch list
Although management succession isn’t something to worry about with ASOS, the firm does have a few traits that keeps me cautious about owning the shares. Top of the list is valuation.
At today’s share price around 3037p, the forward price-to-earnings ratio runs at about 56 and City analysts following the firm expect earnings to grow by 24% that year. I’d describe that valuation as high.
Another problem is the low margin ASOS earns on its turnover. There isn’t much room for error or setbacks in ASOS’s financial model. Last year’s full-year results revealed a profit margin running at just 3.75% or so.
Then there is ever-present risk thanks to the dual threats of fashion and cyclicality. ASOS could mess up its marketing in the future, or becomes un-cool for whatever reason with the world’s twenty-something fashion consumers. Fashion sales depend upon being fashionable. Cyclicality, on the other hand, is something that all non-essential retailers face, and a prolonged economic downturn could be the kiss of death for thin margins and turnover growth at ASOS.
Nothing much has changed
Despite a change at the top, nothing much has changed with the ASOS investment story: the firm still pumps out high sales growth.