ASOS plc
International Demand
Pressures
Ticker: ASC:LN
Index: FTSE AIM All-Share
FTSE AIM 100
FTSE AIM UK 50
FTSE
AIM All-Share - Retail
Price: £ 28.32
52-week Low: £ 29.59
52-week High: £ 71.95
Mkt Cap: £ 2,354m
Free Float (%): 63%
Performance (%) 1m 3m 12m
ASOS shares -32 -43 -27
FTSE AIM 100 -1 +2.8 +11
Q3
2013/14 Results (Ending on May 2013)
ASOS recently announced its Q3 results with total retail
sales up 25% y-o-y. International sales were lower than expected (£151.1m)
while UK sales rose an impressive 43%.
ASOS has seen its retail sales rising 25% y-o-y to £243m,
with international retail sales up 17% consisting 62% of total retail sales. In
addition, capital expenditures are expected to be £68m for the current financial
year (in line with previous guidance). Although sales and margins were well
pressured this quarter, all customer metric in each territory were positive
(with Australia being the only exception). ASOS managed to increase active
customers by 32% to 8.6m at the end of May 2014, the items per basket and the
frequency of purchases.
Gross margin was down 370bps on prior year mainly because of
the shift from international to UK sales (with the later offering lower gross
margins), promotions and clearance activity.
The slower growth in sales along with a rise in inventory
(+30%) clearly indicates that the demands has been much lower. We expect that
this will influence the profitability in the short term. However, the Sterling
continuous strengthening had a huge impact on the international sales growth
and margins. Thus, as zonal pricing is implemented, we expect that benefits will
start flowing back, resulting in higher future margins.
Stock
& Valuation
Q3 trading statement released on 5th June drove
ASOS stock price down to £31.2 due to lower than estimated EBIT margin, sales growth
(especially non-UK), losses in China and currency movements.
The estimated value of ASOS stock is £40.8 based on a 14
year Discounted FCF model. The reduction
in the estimated value is mainly influenced by the lower international sales
estimates and higher CAPEX.
In our point of view, sales growth rates in UK will start
declining from next year but we are very optimistic for sales growth in the
rest territories for the following years, when zonal pricing is launched. Specifically,
over the next 6 years we expect sales to grow at a CARG of 15% in the UK, 25%
in the EU and 23% in US. The Rest of the World segment sales are expected to
grow at a CARG of 21%.
*Word and Excel files are available on request.
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