Asos chief plays down Tesco threat as profits surge 9%

Published on Monday 16 November 2009 20:20

ONLINE fashion retailer Asos yesterday shrugged off the threat of competition from a new clothing website run by supermarket chain Tesco after reporting a 9 per cent rise in profits for the first half.

The firm – which targets 18- to 34-year-olds looking to emulate the designer outfits of celebrities such as Kate Moss and Victoria Beckham, but at a fraction of the price – said it was optimistic for the rest of the year despite slower sales growth in the UK.

The group – which plans an advertising blitz in the new year– reported pre-tax profits of 4.4 million in the six months to 30 September, up from 4.1m last year due to a boost from international sales and tighter cost controls.

It said sales for the seven weeks to 15 November were up 46 per cent year-on-year, compared with a rise of 47 per cent in the first half.

However, sales growth in the UK slowed to 23 per cent in seven weeks to 15 November, against 33 per cent in the first half.

Overseas sales rose by 112 per cent in the latest period, compared with 161 per cent in the six months to 30 September.

Chief executive Nick Robertson said: "Our awareness is still pretty low among our core target markets, so we will be pushing the button on more advertising in the new year."

Asos launched its first billboard adverts last month but Robertson said rising unemployment among young people was holding back UK sales. He also pointed the finger at the warmer weather – which meant people spent more time outside rather than indoors shopping online – and the postal strikes.

But Robertson played down the threat from Tesco, which last month launched its own clothing website.

He said: "We're very much the younger, sharper end of fast fashion. We're much more akin to Topshop, and I don't think Topshop is worried about Tesco selling clothes on the internet."

Fashion groups Inditex (owner of Zara) and H&M will pose more of a challenge when they launch websites in the UK next year, but their single-brand approach would not threaten the multi-brand Asos, Robertson added.

Commenting on the latest sales figures, Robertson said: "Am I disappointed? No, overall. Can we do some more stuff in the UK to keep that growing? Yes."

He said group sales were growing above their forecast range of 30-40 per cent, thanks to strong demand from France, Germany, the United States, Denmark and Ireland.

Robertson did not expect analysts' consensus full-year profit forecast of about 19.5m to rise before Christmas, but said that if current trends continued, it might increase in January.

He said gross profit margins, which fell 370 basis points in the first half, would improve in the second, resulting in a full-year decline of around 1 per cent.

New finance director Nick Beighton was working through several operational improvements to the business, Robertson added, though he declined to quantify the benefits.