ASOS – Grand Growth Plans Met With A Yawn

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ASOS plc (LON:ASC) is targeting £7bn worth of sales over the next 3-4 years, with operating profit margins of at least 4%. This reflects a compound annual growth rate of 15-20%.The group plans to support this initiative by building out its own-brand offerings to add £1bn to revenue, doubling the size of ASOS in the US and EU, increasing Partner fulfilment to 5% of merchandise volume and embarking on cost saving efforts worth £50m-£100m.

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Longer-term, the group plans to grow Partner fulfilment to 25% of merchandise volume. Growth in this higher-margin part of the business together with maturation of international divisions and cost cutting efforts is expected to increase operating profit margins to at least 8% in the long-term.

More information about the group’s strategy will be made available on the group’s website later in the day.

The shares were broadly flat following the announcement.

ASOS Lost Its Spot In The Limelight

Laura Hoy, Equity Analyst at Hargreaves Lansdown:

“ASOS the fast fashion darling has lost its spot in the limelight and its attempt to show how it plans to take a leading role again have fallen flat. It sought to restore investor confidence with a £7bn revenue target over the next 3 to 4 years. To get there the group will double its US and UK businesses and expand its own-brand offerings. However it’s a focus on increasing partner fulfilment that holds the key to longer-term success.

Growth in this higher-margin part of the business is essential if the group’s to meet its goal for operating margins of at least 8% in the longer term. Currently, the segment makes up just a small fraction of total revenue, but ASOS plans to grow that to roughly a quarter.

The market was decidedly apathetic about ASOS’ grand plans. Although the growth targets are ambitious, it’s hard to get excited about online retailers these days. They’ve enjoyed goldilocks conditions over the past 18 months and a return to normalcy means higher return rates and less incentive to shop online. Add that to supply chain woes and it’s a recipe for near-term volatility.”

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