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Britain's ASOS back in vogue with Christmas sales beat

LONDON (Reuters) - British online fashion group ASOS beat forecasts for Christmas sales, increasing investor confidence that management has addressed the operational and execution issues that plagued it in 2019, and sending its shares higher.

The stock was up 1.95% at 1057 GMT on Thursday after ASOS, which sells fashion aimed at 20-somethings, said its retail sales rose 20% to 1.075 billion pounds ($1.41 billion) in the four months to Dec. 31.

The update topped analysts’ expectations for growth of around 15%. ASOS said it benefited from a record Black Friday, product innovation and a step-up in promotions, driving a 20% increase in total orders to 27.7 million.

“It is still early in the year and much remains to be done, but we are encouraged by the progress we have made so far. We remain confident in our ability to capture the substantial opportunity ahead of us,” Chief Executive Nick Beighton said.

ASOS is working through a major overhaul of its warehouse and technology capabilities, moving from a UK-focused to a global model so it can better access growth opportunities and compete more effectively with rivals such as Boohoo.

Poor execution of Black Friday promotions in 2018 led to a profit warning and another followed in July last year, highlighting problems ramping up warehouses in Atlanta and Berlin which restricted product availability, hitting sales and raising costs.

In October ASOS said these issues were largely behind it, and its performance over the Christmas trading period showed further progress, with UK retail sales up 18%.

In the European Union region sales rose 21% and in the U.S. they were up 23%, which Beighton said reflected improved product availability and “strong warehouse operations”.

He said a gross margin down 170 basis points was in line with the firm’s plans, reflecting stock build and duty payments in the U.S. and more promotions to drive sales in November. \

ASOS said it was on track with its programme for the full 2019-20 year and its outlook was unchanged.

Its performance implied a 2% upgrade to consensus revenue forecasts for the year, analysts at RBC Europe said.

However, analysts at Liberum said questions remain around the cost of achieving sales growth.

“The outlook is unchanged, however we have little detail on what the outlook looks like including the path back to a 4% EBIT margin,” they said in a note.

While ASOS had a tough 2019, its main online rival in the UK, Boohoo, thrived. Last week Boohoo lifted its full year guidance after reporting robust Christmas sales.

While ASOS’s share price is flat over the last year, Boohoo’s has jumped 70%.

($1 = 0.7608 pounds)

Reporting by James Davey; editing by Jason Neely and Katya Golubkova