Market Darling Asos Plunges as Sales Growth Disappoints Analysts

(Bloomberg) -- Online fashion retailer Asos Plc hit a stumbling block on Wednesday after reporting sales growth that disappointed analysts and increasing its capital expenditure forecast for the next two years. Several brokers noted weakness in the company’s international business, while Berenberg said today’s share-price drop is a buying opportunity.

The stock fell as much as 12 percent, the most since June 2016. Its share price has risen more than 2,000 percent in the past decade, with the fashion company’s market value overtaking that of retail bellwether Marks & Spencer Group Plc last year. Analysts are broadly positive on the stock, with 15 buy ratings, 8 holds and 3 sells in a Bloomberg survey.

Morgan Stanley, Andrea Ferraz

(Underweight, PT 5,000p)
1H results were disappointing, with revenue growth missing estimates for the first time in more than 18 months. The company’s U.K. sales growth of 22% in 1H suggests a slowdown from 23% growth in 1Q. “The shares have been supported by revenue beats,” Ferraz wrote in a note. “If these fade and cash keeps deteriorating we expect the shares to come under pressure.”

RBC Europe, Sherri Malek

(Outperform, PT 8,100p)
1H retail revenue missed estimates, driven by the online fashion retailer’s international business. Revenue for the Rest of the World grew 6% compared with consensus estimates for 22% growth, as “triple-digit revenue growth in Russia” was annualized. Malek stays bullish on Asos’s top-line growth due to the company’s “in-house developed technology, along with its own-brand offer and editorial content.”

Berenberg, Michelle Wilson

(Buy, PT 8,300p)
2Q sales missed consensus analyst estimates, with weakness in the company’s Rest of the World business caused by subdued growth in Australia over the last six months. A “key negative” was the retailer’s year-end cash balance forecast of ~GBP40 million, following the increase in capex and working capital investment. “We would buy into any weakness,” Wilson said.

Barclays, Andrew Ross

(Overweight, PT 7,710p)
Revenue missed estimates on tough comparables, which will “ease notably” in 2H. Working capital was worse than expected “and hadn’t been communicated clearly.” Investors shouldn’t get too carried away with the revenue miss, because Asos is laying the foundation for future topline outperformance.

UBS, Andrew Hughes

(Buy, PT 7,800p)
The capex needed to sustain medium-term growth is higher than expected. Although the company maintaining its P&L forecast is good news, “the focus today may be on rising capital intensity and higher than expected cash outflows for the next two years.”

--With assistance from Blaise Robinson

To contact the reporter on this story: Lisa Pham in London at lpham14@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Beth Mellor, John Viljoen

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