Market watch: Asos dressed for success

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HIGH demand for the latest fashions among twenty-somethings is driving sales at Asos, but investors will also be looking for strong evidence of ­improving margins when the online fashion specialist gives its trading update.

The UK’s largest internet-­only clothing retailer is expected to post a rise of at least 40 per cent in turnover when it reports its third-quarter figures on Wednesday, even though UK fashion firms have struggled amid the coldest spring weather in 50 years.

Asos is set to reveal double-digit growth in all of the areas where it operates. The company has been a particular ­favourite among investment analysts since reporting accelerating growth in the first half of the year. However, strongly increasing sales have been ­accompanied by slipping margins as Asos has worked its way through a year-long programme of “price investments” to shore up demand in its home UK market.

Matthew McEachran, of ­brokerage N+1 Singer, said margins should improve as the cost of those pricing initiatives work their way through the ­accounts. The only stumbling block would be if sales in ­lower-margin markets such as the UK significantly outpace those in more profitable areas, something McEachran does not ­anticipate.

“This time it should not just be about rising sales with ­adverse margins, it should be about sales growth with improving margins,” he said. “That is what everyone will be looking for.”

Catalogue retailer Argos comes into focus on Thursday when first-quarter trading will reveal if it has maintained the recent turnaround that has seen it return to year-on-year profits growth.

An online push boosted the retailer’s annual figures, ­reported last month, but analysts have raised questions over whether its electricals ­division, boosted by a splurge on tablet computers, can ­maintain its momentum.

The drive for growth has also seen Argos undergoing an overhaul, which involves ­closing or relocating at least 75 stores over the next five years.

Parent company Home ­Retail Group posted its fifth consecutive slump in annual earnings last month as the ­improved Argos performance was dragged down by weather-hit sales at DIY chain Homebase, which it also owns. Overall underlying pre-tax profits for Home Retail were down 10 per cent to £91 million. However, analysts are ­expecting that in the current financial year they will grow for the first time since 2008, with a figure of £100m ­predicted for 2013/14.

PZ Cussons – maker of Carex, Imperial Leather and Original Source – is due to ­update the City on its latest performance on Thursday as it battles for business amid squeezed consumer incomes.

It will be looking to build on a positive update earlier in the year when it announced it had grown first-half profits despite high levels of promotional ­activity in the bathing sector.

Mulberry’s attempts to turn around recent disappointing trade will take centre stage, also on Thursday, when the luxury handbag maker is tipped to disclose reduced ­annual profits.

Two profits warnings have hurt the Somerset-based firm in recent months as tougher markets in Asia, a post-Christmas fall in tourist spending and attempts to improve the quality of its distribution network hammer earnings.

Pre-tax profits are expected to fall to £26m during the year to the end of March from £36m a year earlier. Analysts expect revenues to dip to £164.8m from £168.5m. But ­investors will be hopeful that Mulberry can regain momentum after better results from other luxury goods brands.