Member Info for Peoplepower1

continued further .......

4. Low own-brand sales

This lack of niche isn’t helped by a low input of its own brand revenues. Asos makes roughly 28% of revenues from its own Asos brands vs the vast majority of its own supply for Boohoo. Now we all know the risks that are present in owning your product supply chain, especially if you have poor governance in place, however, by relying on branded retail products for +70% of revenues, you begin to see why profit margins are of lower quality at Asos. By commanding own-brand sales, retailers benefit from higher margins and better relationships with customers. By tailoring products faster to new trends, own-brand retailers like Boohoo can outpace competitors who are waiting for their wholesale supply chain to pick up on the trend.

Asos has made improvements here in recent years, and the purchase of Topshop was likely to improve Asos’ footing in this department.

JD does rely on key brands Nike and Adidas to a large extent. However, JD is a value-add retailer — its sought after urban locations (such as the new flagship store in Times Square, New York) are locations where Nike and Adidas would want to show off their latest collections to a high volume audience. It is this value add process that gets JD sports named specifically by Nike as a preferred retailer in conference calls, and it is why I am less concerned about JD's reliance on big brands.

An in-depth look at the financials can help explain some of the aforementioned points. Whilst growth has been pretty punchy over the years, the two missteps in 2015 and 2019 show that a low growth year every once in a while can be expected and is partly the reason behind such a volatile share price. Gross margins are solid at around 50% but the key quality metric of operating margin remains low at <5%. Asos has been fairly leveraged in recent years, with a debt to equity ratio above 1.5 for the majority of the last 5 years — however, with good top-line growth, leverage is probably worth having. The recent Topshop acquisition has added significantly more assets to the balance sheet, thus reducing Asos' return on capital employed (ROCE) from a previously impressive 20% down to 13%. This likely means the acquisition hasn’t been immediately accretive to profits, however, in the long run, I would expect the purchase to pay off.

In summary, there are lots of reasons to like Asos — the growth story looks set to continue and returns have been magnificent for long term holders. However, there are a few specific reasons I prefer Asos’ peers for exposure to the fashion market as mentioned above. There could be more volatility in future, and I will be revisiting the Asos story if signs of margin improvement or a significant share price decline ensue.

The Twenties Trader does not own shares in Asos.

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Further competitive pressure on the fashion retail marketplace is the increasing threat of key brand suppliers looking to increase their DTC (direct to customer) sales, which have better margins. Pretty much every clothing brand’s conference call I listen to — whether that be Nike, Adidas or a recent call in Levi’s Q1 results — the second hot topic on the agenda after sustainability is increasing DTC sales and reducing wholesale retail (the sale of products to third-party retailers).

In my mind, the switch to online has changed the game in retail. Previously, a strong argument for owning clothing retailers (in a brick and mortar setting) was the comparison effect — shoppers liked to view a brand or product next to other potential product choices to help aid the decision-making process. This worked well in a physical store, as a multi-brand retailer can have many different brands listed next to each other so the shopper can make a comparison. Switching to online, if, for instance, I am evaluating my next purchase of a pair of jeans, I can load five pages from each of my favourite brands and visit their online stores to compare products. Thus, in an economic sense, the cost of comparison is minimal in the online setting vs bricks and mortar. With the shift to online ever increasing, I think the DTC model of key brands is only going to grow from here, thus putting further pressure on multi-brand retailers to compete for the business of key suppliers.

Lastly, further competitive pressure on the online-only retail space is the advent of an entirely new product category that has spun up over the last few years, sustainable retail, such as the online second-hand clothes shops Vinted, Poshmark, Vestiaire Collective and Thrift. With Asos’ core customer base of millennial 20 somethings, a (typically) climate change and sustainability-conscious demographic, I would expect challenges to be seen looking to future growth.

3. Lack of Niche

To me, the Asos business model lacks a specific niche. Asos’ sales are spanned across all apparel lines, accessories and footwear, and even though its mission is to be ‘the #1 destination for fashion-loving 20-somethings worldwide’ I am not sure Asos’ is discernable to any specific age category or customer type. By catering to a broader market, it increases the scope and scale of Asos’ business. However, Asos’ product lines are far more general than both JD and Boohoo. JD caters to a cash-rich, resilient, ‘sneakerhead’ market, where teens see JD and other retail sites such as ‘Size?’ and ‘Footpatrol’ as the place to go for the coolest footwear. Boohoo appeals strongly to the younger teen market, with a niche for Instagram style influencer wear. To me, Asos has a much more general basket of customers, which can lead to less loyalty, as they are easier to influence to spend money elsewhere.

Asos is a company I really struggle to judge, and the market clearly does too. Since 2010, the Asos share price has crashed over 50% in three separate instances, each time rallying by more than 300%. I can’t imagine what this rollercoaster has been like to ride for long term holders, but if they have managed to hold on, they will likely be quite happy with the result to date. Asos continues to grow into its UK, European and US markets and has recently acquired Topshop and other assets salvaged from the break up of Phillip Green’s empire. Whether Topshop can be integrated into Asos effectively or just gets wound down, I still think it is a smart move, as Topshop in the hands of a competitive owner or private equity would have diverted sales away from Asos’ business.

I own both JD Sports and Boohoo in my personal portfolio, and I like the fashion market, especially for the more digitally engaged operators. However, I don’t own a position in Asos for these four reasons.

1. Growth / Profit mix

My first issue with Asos is that it doesn’t seem to be growing that fast. I say ‘that’ in a light-hearted fashion, as a four year average of 23.6% is very good growth, and much faster than the wider market. However, looking at UK peers JD and Boohoo, Asos hasn’t quite performed in line in growth terms. Some of JD’s growth is arguably attributable to their recent acquisitions of retailers to increase their global footprint. However, Asos’ growth hasn’t been solely organic either.

I can understand buying a slower growth business if profits are more significant, in essence, you trade off some growth to receive a more cash generative business. However, Asos’ operating margins are pretty woeful. An average of 3.5% in the last 4 years is not good and is under half the level of Boohoo and JD, peers that are growing much faster than Asos. You may argue Asos is at an early stage in its growth story, however, Boohoo is not only smaller, but also younger in its growth story than Asos, and yet manages double the operating margins.

Even as investors in growth companies, profits still matter, and operating margins are a strong precursor to how likely the business will be able to reinvest capital for future growth.

2. Competitive Pressure

The second factor that influences my preference for other companies would be the competitive pressure that Asos faces. The online fashion marketplace is fierce. Well capitalised global peers in the online-only retail space such as Zalando in Europe, Fashion Nova and Revolve in the US and Boohoo in the UK fight for market share with more traditional retailers such as Debenhams and Selfridges in their local markets. They also fight a resilient core of low to mid-tier brick and mortar apparel companies such as Next, Zara and H&M.

Boohoo closed at 344.20p, down 0.50p

Boohoo did very well today considering Asos is down again, more than 4%.

Well Done Boohoo.

Roxanne123 - great video and well worth watching in full

https://www.youtube.com/watch?v=wLy5QUpU6EU

A boom in e-commerce has meant retailers have jostled for warehouse space to cope with the increased demand.

BobbyB04 - looks to me like you were looking at Boohoo today because you're out of Boohoo and maybe looking to get back in because of the new warehouse.

From reading your past posts, you post pretty regularly yourself albeit not on the Boohoo board. It looks to me like you've been doing your best to get people to buy the shares you own.

I research throughly the posters on here as well as the shares I buy and hold.

Impatience is the way to lose money.

Patience is the key to making the real money.

Brilliant Hydr31, love it.

BobbyB04 - I invested £100,000 in Boohoo shares in 2015 and it has now grown to £1.2m. I have held them through every up and down and will be holding them for many years to come.

I have traded in and out of shares in the past and learnt that the only way to make the real money is by buying and holding shares like Boohoo.

I post on here to help other investors to make better investment decisions.

Working on 30% growth a year, Boohoo Group should reach £4 billion revenue for year ending results for 28 February 2023.

In two years time Boohoo Group should reach £4 billion revenue.

boohoo, a leading online fashion retailer, is pleased to announce that following exchange of contracts, it has agreed a long-term lease for a new warehouse in Daventry, due to become operational in the second quarter of the Group's financial year. This site will support the Group's expansion and adds capacity in addition to its existing facilities in Burnley, Sheffield and Wellingborough. In aggregate, these sites will give the Group net sales capacity in excess of £4 billion.

The new warehouse is scalable, with the Group expecting to invest over £50 million in the coming years, increasing capacity and offering the Group operational flexibility as it grows. The deal is expected to secure up to 500 jobs and in the future create up to a further 1,000 jobs as capacity increases at the site.

More than £4 billion capacity - well done Boohoo.

https://www.boohoo.com/

Check it out.

Professor Ben Foyer, department of psychological and behavioural science at LSE, says that budget fashion helps consumers to feel that they have an elevated position socially and financially.

“Fast fashion, with its rock bottom prices, can give the illusion to young women on a budget that they are well off simply because, relative to their means, it gives them choice and options to play with,” he explains.

“Teenagers tend to follow the behaviours of their friends, because fitting in and belonging to groups is an important part of our social identity.”

Targeted at 16 to 30 year-olds in their ‘pea**** phase’ of identity formation, Boohoo owes its success to influencer partnerships used to continually pump out trends and affordable avenues to identity.

With regular 50 per cent off sales and free next day delivery, Perry says inexpensive shopping destination such as Boohoo and ASOS, have democratised fashion.

“It’s not something just for wealthy people anymore but it’s for everyone and everyone can afford to buy brand new things.”

https://www.investingcube.com/heres-why-boohoo-share-price-rose-after-strong-asos-earnings-shares/

AJ Bell financial analyst Danni Hewson said fears that ASOS would suffer because its core youthful demographic has been disproportionately hit from a financial point of view by Covid-19 ‘have so far proved unfounded – even if the company itself is cautious on that point going forward.

‘And it doesn’t seem like being unable to go out and socialise has stopped people from wanting new clothes – after all taking the bins out or a trip to the supermarket have become the equivalent of going out to a club or pub and people have still wanted new joggers and sweatshirts to hang out at home.

‘Reopening should offer some benefit as people refresh their wardrobes to get out and do stuff again but will also see some demand filter back to shops.

‘Though like other trends accelerated by the pandemic, a greater proportion of people buying clothes online is something which looks to be here to stay.’

https://uk.investing.com/equities/boohoo-technical

Boohoo Share price closed at 344.70p, up 1.30p

Asos down nearly 4%

Classhero has already stated on here - Boohoo has been growing exponentially and I have already seen on unofficial sources that growth this year could be as high as 46%.

ASOS said first half retail sales alone jumped 24% to GBP1.92 billion from GBP1.55 billion as its customer base increased by 1.5 million to 24.9 million during six months.

Customers increased by 1.5 million in six months. That bodes well for Boohoo results.

British online fashion retailer ASOS is "highly likely" to acquire more brands, its boss said on Thursday.

In February, ASOS bought the Topshop, Topman, Miss Selfridge and HIIT brands from the administrators of Philip Green's
collapsed Arcadia group for 265 million pounds ($365 million)aiming to accelerate its multi-brand strategy.

"ASOS has got ambitious plans," CEO Nick Beighton told Reuters after the group published record first half results.

"We're building our business to be a substantially greater business with a 10-year view...It's highly likely to achieve those goals we would pick-up some other brands or acquisitions along the way," he said.

But Beighton said the bar for deals was high.

"It's got to be fashion, it's got to be something our 20-somethings care about, it's got to be a strong return for our
(share) holders."

If Asos are thinking 10 years ahead then you can be sure Boohoo are thinking 10 years ahead too.

And, Boohoo will be buying more brands with their large chest of £300m and their ability to buy brands cheap from administration.

In the FTSE 250, Dunelm Group was up 2.7%.

The home furnishings retailer said though quarterly sales fell overall, digital sales more than trebled.

For the third quarter to March 27, total sales were GBP236.6 million, down 17% from GBP284.4 million at the same time last year as the majority of the retailer's store estate was shuttered in the period due to Covid-19 restrictions.

However digital sales - which includes click & collect and home delivery - surged to make up 92.4% of total sales from 22.5% a year before.

On AIM, ASOS was up 1.1% after the online fashion retailer said its first half sales rose by almost a quarter, as stay-at-home measures shut its high street counterparts and caused a boom in e-commerce and also hailed its acquisition of Arcadia's assets.

In the six months to February 28, revenue rose 24% to GBP1.98 billion from GBP1.60 billion a year earlier. The measure includes other items such as delivery receipts and third party revenue.

Retail sales alone were 24% higher at GBP1.92 billion from GBP1.55 billion.

Its profit also surged. ASOS recorded a pretax profit of GBP106.4 million, from GBP30.1 million a year earlier. Adjusted pretax profit, so not including one-off costs related to its Topshop deal, came in at GBP112.9 million.

"The company has managed to retain its young and trendy following and, following a partial return to the workplace and the renewed ability to socialise, ASOS could well benefit from many a refreshed wardrobe. The addition of the Topshop brands are seen as both complementary to its existing offerings as well as providing another route to its youthful audience, and the initial signs of the integration are promising," said Interactive Investor's Richard Hunter.