- The fast fashion retailer has seen double-digit gains for the past two days
Asos shares were enjoying a second consecutive day of double-digit gains on Friday morning as the beleaguered fast fashion retailer lifted profit expectations.
The retailer, which saw its shares fall to a 17-year low earlier this month, told shareholders it expects to report a ‘significant improvement in profitability’ for its first half, thanks to lower markdown activity, increased full-price mix and cost cutting efforts.
Asos has endured a torrid post-Covid trading environment with sales and customer numbers falling sharply from lockdown-era highs, and the group forced into painful stock clearance costs.
The group continues to expect a 13 per cent decline in total sales for the first half, but for adjusted earnings before nasties to come in ahead of market expectations of £34million.
Asos shares were up 22.6 per cent by late morning to 312.6p, having added almost 11 per cent on Thursday amid rumours Danish billionaire Anders Holch Povlsen could launch a takeover.
Povlsen upped his Asos stake from 27 to 28 per cent, bringing him in touching distance of the 30 per cent required to trigger a takeover offer.
Asos shares have surged in recent days but trade almost 95% below their February 2021 peak
Povlsen is Asos’s biggest shareholder, and Mike Ashley’s Frasers Group has 22 per cen. Any swoop could pit him against the tycoon.
The group’s shares remain 8.5 per cent lower than a year ago and almost 95 per cent below their February 2021 peak.
Asos attributed recent improvement in own brand full-price sales to its ‘market-leading’ test and react model, which allows companies to make orders in small batches so they can be produced faster.
The group said more than 15 per cent of own-brand sales are the results of the model, which ensures Asos ‘can offer the most exciting product and set the trends for its fashion-loving customers’.
Asos scores broker upgrades
Analysts at Peel Hunt said: ‘The key for Asos is to demonstrate the relevance of its platform once more.
‘Success in own-brand sales, improving sales momentum, and signs of growth in frequency and active customers will be the barometer of success, in our view.
‘In the meantime, returning gross margins to the high 40s and generating cash should keep the company on track.’
The broker upgraded Asos from ‘hold’ to ‘add’ with a target price of 375p.
Shore Capital analyst Katie Cousins also upgraded Asos from ‘hold’ to ‘buy’.
She said: ‘Whilst we continue to state some caution relating to market pressures and customer trends, the recent balance sheet actions and progress the Group has made to support profits are encouraging.
‘Furthermore, the share price falling to 2008 lows… [makes] for a better entry price and factoring in the market risks in our view.’
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