ASOS Regulatory News (ASC)

16 Nov 2009 07:00



FOR RELEASE 7.00 AM

16 November 2009

ASOS plc ("the Company")

Leading online fashion store

Interim Results for the 6 months to 30 September 2009

Summary results:

Key highlights:

Total sales growth +47%: UK sales growth +33%, International sales growth +112%

Investment in UK growth and International continues

Number of active customers up +32% year on year to 1.2 million at the end of October 2009

Costs and stock tightly managed

Introduction of free returns for all UK customers

Current trading and outlook:

Positive start to the second half with total sales for 7 weeks to 15th November +46% year on year

UK sales for the 7 week period +23%, International sales +161% 

Online sales continue to outperform the overall retail market

Board remains cautiously optimistic ahead of peak trading period 

Nick Robertson, Chief Executive of ASOS, said:

"A strong first half performance and a very encouraging start to the second half. UK sales continue to grow and International sales have accelerated. We invested in a number of customer facing initiatives, specifically around delivery and returns and continued to build our International operations, the output of which is clearly visible with International now representing 25% of our sales. Fundamentally, the internet is the retail channel with the greatest potential and ASOS is ideally situated to exploit it."

  For further information: 

ASOS plc 

Nick Robertson, Chief Executive Tel: 0207 756 1000 

Nick Beighton, Finance Director 

Website: www.asos.com

Cubitt Consulting 

Brian Coleman-Smith / Nicola Krafft / James Verstringhe Tel: 020 7367 5100 

JPMorgan Cazenove 

Luke Bordewich / Gina Gibson Tel: 020 7588 2828

Numis Securities

Alex Ham Tel: 020 7260 1000

Background note

Established in June 2000 and admitted to AIM in October 2001, ASOS.com is the UK's largest independent online fashion and beauty retailer and offers over 34,000 branded and own label product lines across womenswear, menswear, footwear, accessories, jewellery and beauty with approximately 1,500 new product lines being introduced each week.

Aimed primarily at fashion forward 16-34 year olds, ASOS.com attracts over 6.3 million unique visitors a month and as at 31 October 2009 had 2.8 million registered users and 1.2 million active customers (defined as having shopped in the last 6 months). www.asos.com

  ASOS plc ("the Company")

Leading online fashion store

Interim Results for the 6 months to 30 September 2009

Chief Executive's Review

Summary 

We posted a strong first half with UK sales up 33% and International sales up 112%. This performance was a direct consequence of the investments we made in extending the product range, enhancing the customer experience and expanding our International capabilities. Sales were slightly flattered in the period due to the timing of the Easter sale.

Stock and costs were managed more tightly, ensuring that profit before tax was ahead of the prior year despite the reduction in retail margin over the period. This reduction was the result of the additional sale mentioned above, an increase in the branded mix and the foreign exchange impact on our bought in margin.

Following the introduction of a new warehouse management system in April, we were able to leverage the improved working processes and our scale to greatly enhance our service proposition, specifically around delivery and returns as set out in more detail below.

Business Review

We added a further 12,700 lines to the site (including a number of new brands), taking the total number of lines to 34,000. This included a men's offer within ASOS Outlet and an own label kid's range called Little ASOS.

A number of new delivery options were introduced during the period, including a same day service within the M25 including Saturday and Sunday, a nominated day service and a super saver six day service. We are also trialling our ASOS Premier service whereby customers receive an unlimited free next day delivery and returns pick-up service for an annual fee.  Delivery is now free in the UK for orders over £75 and we have made returns free for all UK customers. The financial impact of free returns is within anticipated levels. 

We are planning additional marketing activity over the coming months to further increase brand awareness in the UK.

Key Performance Indicators (KPI's) H1 2009/10

The key performance indicators for the first half are shown in the table below.

International

We continue to develop our International capability which now represents 25% of our sales. Our offer extended to an additional 56 countries, taking the total to 114 and we introduced fixed rate shipping charges and an express shipping option to 112 of these countries. We also increased our marketing efforts in a number of key territories. Our main markets during the first half were Denmark, Ireland, France, Germany and the US. 

Outlook

Our outlook for the second half remains cautiously optimistic. We expect UK sales to carry on growing, underpinned by further marketing activity, and for International sales to continue providing additional momentum. Stock and costs have been controlled well, so our performance in the second half should be significantly ahead year on year, providing sales continue to grow in line with expectations.

Nick Robertson

Chief Executive

  Finance Director's Review

During the half year ended 30th September 2009, ASOS made excellent progress, with sales increasing 47% over the previous year. 

Revenues

An analysis of our revenues is shown below:

*Advertising revenues

Sales remained robust against a tough consumer backdrop. In the second half we expect delivery receipts to stay broadly level on the prior year. Third party revenues (mainly comprising our advertising revenues) increased strongly and are well on track to meet the revenue targets for the full year.

Segmental analysis of revenues: 

Our International expansion is progressing well and is in line with our plans to increase the ease of shopping for our existing International customers and to extend our offer to a greater number of territories. With this in mind, we added 56 countries to our delivery schedules, bringing the total number of countries covered to 114.

These activities have driven our International business forward significantly with sales growth of 112% for the half year, whilst our International resources have been built-up accordingly. 

Gross profit

Our gross profit increased by 34% to £40.5 million, with group gross margin coming in at 42%, against 46% in the prior year. The 370 basis points reduction in the retail margin to 44.6% (from 48.3% in H1 2008/09) resulted from increased sourcing costs,  incremental markdown arising from the extra sale period during the first half and a change in the branded product/own-label mix, when compared to last year.

Following the strategic decision to make investments in the service proposition, the delivery margin declined accordingly. Going forward, the incremental cost of implementing our free returns policy will be borne in the delivery cost line, which is included in the cost of goods sold. During the second half of the year, we therefore expect to post a negative gross margin in this part of our business. This will, however, have only a small impact on the group gross margin.

Operating costs

Operating costs grew by 37% to £36.1 million, and in total, the operating cost ratio to sales improved by 280 basis points to 37.4% (2008/09: 40.2%).

During the first half, we focused on controlling operating costs, resulting in an increase in operating efficiency.

Our headcount at the end of the half year (excluding the logistics team which is outsourced) totalled 520 people up from 441 at the year end.

During the half year we upgraded the warehouse management systems at our warehouse in Hemel Hempstead. The operating costs in the warehouse have increased by 34% on the prior year but again delivered a greater productivity ratio year on year. The operating cost ratio improved by 90 basis points to 10% (2008/09: 10.9%).

Marketing costs were held broadly flat year on year, as management prioritised the investment into the service elements of the business.  A greater amount of investment is anticipated in the second half as we look to further increase our brand awareness domestically and Internationally.

There was also a rise in productivity relating to production costs (preparing, photographing and managing the website images) during the half year as we continued to expand the breadth and depth of our product offering.

Other costs include head office running costs, IT infrastructure and legal and professional fees. The step change in these costs was down to a significant investment in the IT function and infrastructure to support the core system replacement programme and the development of the website. We do not expect this rate of increase to be maintained for the remainder of the year.

Operating profit

Operating profit for the financial year increased by 14% over the half year to £4.4 million and the operating margin declined to 4.5%, down from 5.8% in H1 2008/09. The gross margin dilution was partially offset by the operating cost ratio improvement, resulting in an overall 130 basis points decrease at the operating profit level.

The cash balance was broadly level year on the year at £8.7 million, (H1 2008/09: £8.9 million). The financial income derived on this cash balance was, however, significantly lower than the prior year, as a result of lower prevailing interest rates.

The effective rate of tax for the group was 28.2%, slightly above the UK statutory corporation tax rate. 

Earnings per share

Fully diluted earnings per share grew by 9% to 4.0p, up from 3.7p in H1 2008/09.

Capital expenditure

Capital expenditure during the half year amounted to £5.1 million, up from £3.7 million in the prior year. The split of capital expenditure is set out below:

The increase in capital expenditure is predominantly related to IT spend, associated with the replacement and enhancement of the warehouse management system, the merchandise planning system and our data centre. 

We expect capital expenditure for the financial year to be approximately £11 million.

Cash flow and net cash

The group continues to enjoy a strong, cash backed balance sheet, which is free of significant long term liabilities and commitments. Major sources of cash inflow in the first half were £5.8 million EBITDA and other creditors of £1.1 million. In addition to the capital expenditure of £5.1 million, the group continued to invest into the employee benefit trust (EBT), contributing £0.5 million in the period.

The group cash balances were maintained at last year's level and reduced from the year end by £4.9 million. This is due predominantly to a first half working capital unwind, associated with the settlement of foreign value added taxes (VAT). We expect cash balances to increase in the second half. 

Dividend

Sustaining the levels of growth delivered to date has required and will continue to require significant capital investment in the Company. The Board believes it is in the best interests of shareholders to continue to exploit the significant growth opportunities available to the business and consequently, does not propose paying a dividend this year. This policy remains under constant review.

Nick Beighton

Finance Director