ASOS H1 preview: Where next for the ASOS share price?

Josh Warner
By : ,  Market Analyst

When will ASOS publish interim earnings?

Online fashion retailer ASOS is scheduled to publish interim earnings covering the six months to the end of February 2022 on the morning of Tuesday April 12. The company will hold a conference call for investors at 0930GMT.

 

ASOS H1 earnings preview

Analysts forecast ASOS will report mild revenue growth of just 3.2% year-on-year in the first half to £2.03 billion. While that would be the slowest topline growth on record, partly because it is coming up against tough comparatives from the year before when demand for online shopping exploded, it will also be the first-time sales have breached the £2 billion mark in a single six-month period.

That implies sales growth has accelerated slightly since the start of 2022 considering ASOS said sales were up just 2% in the four months to the end of December, suggesting the supply chain constraints that have held back growth and volatile levels of demand amid Covid-19 cases in the UK, Europe and the US have eased slightly since the beginning of the year.

Order numbers are forecast to grow 12% to 52.8 million in the period while the average value of each basket is set to nudge-up at a much slower rate of 1.9% to £72.57. Demand will be closely-watched considering customers are grappling with rampant inflation and having to tighten their purse strings, which may deter some from shopping for new clothes, and online shopping starts to normalise following a bumper period during the pandemic. ASOS is most popular with people in their 20s, which are likely to be earning less and suffering more from the inflationary environment than older age groups.

Its gross margin is set to continue to tighten to 42.3% in the first half as ASOS continues to battle against increased shipping costs and pays more after deciding to utilise more costly air freight to expedite deliveries and circumnavigate supply chain bottlenecks.

Analysts are expecting ASOS to see its reported pretax profit plunge over 91% to just £8.7 million in the period compared to the £106.4 million booked the year before. It is anticipated diluted EPS will follow and fall to just £0.06 from £81.9p.

ASOS has signalled that it should deliver a much stronger performance in the second half of the current financial year as the tough comparatives start to fall away, supply chain bottlenecks ease and demand increases as more major events relaunch after years of being suspended amid the pandemic.

However, one potential threat to this expected recovery in the second half is the Russia-Ukraine conflict, which is likely to only add to the supply chain pressure. The firm stopped serving customers in Russia in early March after being forced to suspend sales in Ukraine after it became too difficult to get products out amid the conflict. The two countries contributed around 4% of the company’s annual revenue but around 10% of profit worth around £20 million. While unavoidable, the loss of sales in both countries has come at a bad time considering they offer higher margins than the wider business, further weighing on profitability.

With this in mind, the outlook for the full year will be under the spotlight. ASOS has said it anticipates sales will grow 10% to 15% this year and that revenue will grow by ‘mid-single digits’. It said adjusted pretax profit will be between £110 million to £140 million (with the wide range providing scope for this to be tightened), which would be down from the £193.6 million booked in the last financial year as rising costs and increased investment weigh on the bottom line and over £67 million worth of one-off Covid-19 related benefits fall away.

Over the longer-term, ASOS is aiming to generate £7 billion in annual revenue within the next three to four years but has warned that profitability will fall (with adjusted Ebit to drop toward 4% from 5.3% in the last financial year) as it ramps up spending on marketing to drum-up the demand needed to grow sales and double the size of its US and European businesses while continuing to expand into new countries.

ASOS moved from AIM to the Main Market of the London Stock Exchange in late February. Importantly, ASOS is also still on the hunt for a new leader and has now had a vacant chief executive position for just under six months following Nick Beighton’s resignation last October. His successor will be taking on a huge challenge and joining at a tough time for the retailer, which is a far more complex businesses now that it is pursuing a multi-brand strategy following the acquisition of major brands like Topshop, Miss Selfridge and HIIT in recent years.

 

Where next for the ASOS share price?

ASOS shares have been stuck in a downtrend over the past 12 months and have lost over 70% in value, with the stock currently languishing near two-year lows.

The downtrend has recently found a floor around the 1,500p mark, which must hold to avoid bringing sub-1,400p into play. Meanwhile, the 50-day moving average, which currently sits at 1,845p, has acted as a ceiling for the stock over the past year with shares only having briefly managed to move above this level.

ASOS shares currently trade at 1,610p and the bearish RSI, twinned with the fact trading volumes have fallen since the downtrend started to stall in early March, suggests we will continue to see the stock drift between the floor and ceiling – with a break-out needed to signal where shares could be headed next. A sustained move above the 50-day sma could pave the way for a swift recovery to the 100-day sma at 2,105p.

Can the ASOS share price breakout?

Notably, brokers believe the heavy selloff has been overdone. The 27 brokers covering the stock have an average target price of 3,008p, signalling ASOS shares could rebound over 85% during the next 12 months and hit levels not seen for six months.

 

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