Asos cuts prices to maintain breakneck international growth

LONDON (Reuters) - Online fashion retailer Asos ASOS.L lifted its sales forecast on Tuesday as a tailwind from the weaker pound allowed it to cut prices to maintain fast growth in markets from the United States to Russia.

FILE PHOTO: A model walks on an in-house catwalk at the ASOS headquarters in London April 1, 2014. REUTERS/Suzanne Plunkett

The British company, which sells fashion aimed at twenty-somethings, said full-year sales would increase by between 30 and 35 percent, but it kept its forecasts for the bottom line unchanged as it said pressure on margins, which fell 40 basis points in the first half, would continue in the second.

Shares in Asos, which is valued at 5 billion pounds ($6.2 billion) and trades on an eye-watering price-earnings ratio of 146, fell 4.5 percent to 57.07 pounds.

Analysts at Morgan Stanley said Asos had left its profit forecast unchanged because growth increasingly was coming from the rest of the world where it had invested in lower prices and faster delivery.

“The shares have had a strong run into the results and are trading at a premium to peers, so they could be under a bit of pressure given the lack of a pretax profit upgrade,” they said.

Chief Executive Nick Beighton said the company had lowered prices for its customers overseas, helping international retail sales grow 54 percent in the six months to end-February to 548.4 million pounds.

Sales in Britain rose by 18 percent to 340.8 million pounds, he said, noting it was a “solid” performance in a more promotional market.

Beighton said the drop in the retail margin to 47 percent was mainly due to a loyalty scheme in Britain and lower international prices, although increased input costs also had an impact.

“I am expecting greater pressure on our import costs over the course of the rest of the year while sterling remains weak,” he told reporters.

“The flip side is the weaker pound gives us the opportunity to grow our business, which is predominantly exports, much harder than we anticipated before June 23 last year.”

The drop in the value of the pound after Britain voted to leave the European Union has put pressure on input costs for retailers that pay for imported goods in sterling.

Asos, however, is able to offset some of this impact by using dollar and euro revenues from its international sales.

The company, which has more than 14 million active customers and launches 4,500 new styles each week, had predicted sales growth of 25-30 percent before Tuesday’s upgrade.

It said it was on track to report full-year pretax profit in line with market expectations, which average 80.6 million pounds.

First-half pretax profit came in at 27.3 million pounds, broadly in line with forecasts.

($1 = 0.8037 pounds)

Editing by Kate Holton and Susan Fenton