Asos lifts first-half profit outlook, shares surge again

(Sharecast News) - Asos lifted its profit outlook for the first half on Friday, sending shares in the online fashion retailer surging for the second day in a row. In a brief update ahead of its first-half results next month, Asos said it expects a "significant" improvement in profitability in H1 despite continued volume deleverage, "following a strong gross margin development driven by lower markdown activity and increased full-price mix, and continued cost discipline".

The company expects revenue growth in line with consensus and adjusted earnings before interest, tax, depreciation and amortisation ahead of consensus estimates.

Consensus expectations are for total sales to fall 13%, adjusted EBITDA of £34m and an adjusted EBITDA margin of 2.6%.

"Encouragingly Asos own brand full-price sales, a core engine of its customer proposition, returned to growth in the first half," it said.

"This was enabled by its market-leading Test & React model, now more than 15% of own-brand sales and growing, ensuring Asos can offer the most exciting product and set the trends for its fashion-loving customers."

At 0900 GMT, the shares were up 20% at 306.20p.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: "Online fashion powerhouse Asos is eyeing a much-improved start to 2025. The group gave a sneak peek into first-half trading ahead of its results on 24 April. Profitability looks set to improve significantly, albeit from a very low base.

"The group's been working hard to clear excess inventory off its books and that's starting to bear fruit in the form of less discounting and healthier profit margins. Alongside a tight grip on costs, underlying cash profit (EBITDA) looks set to land ahead of market expectations of £34mn in the first half.

"Signs of progress have piqued some outside interest, and according to a regulatory filing late on Wednesday, Danish billionaire Povlsen - who is also the second largest shareholder in Zalando and owner of clothing chain Bestseller - upped his stake from 27.1% to just over 28%.

"Despite the positive momentum, investors should keep in mind that there are still plenty of challenges to navigate as Asos attempts to turn its fortunes around. Key metrics like active customer numbers were heading in the wrong direction at the last count. And there's plenty of competition from the likes of Next, Shein and Temu which could put downward pressure on pricing and weigh on Asos' ability to rebuild its profitability."

Shares in the retailer surged on Thursday after it emerged that Povlsen had lifted his stake to just below the level that triggers a mandatory takeover offer.

In the UK, when a person or group has acquired 30% or more of a company's voting rights, this triggers an obligation to make a mandatory offer to the remaining shareholders.

Broker Shore Capital upgraded its stance on Asos after the update to 'buy' from 'hold'.

"Whilst we continue to state some caution relating to market pressures and customer trends, the recent balance sheet actions and progress the group has made to support profits are encouraging," it said.

"Furthermore, the share price falling to 2008 lows, results in an EBITDA multiple of just 4x for FY25F (versus peer average of circa 12x), and an EV/sales of circa 0.2x, making for a better entry price and factoring in the market risks in our view."