ASOS share price set to trade higher as sales surge amid lockdown

Shares in ASOS could climb even higher in 2020 after the company revealed a surge in sales as consumers snap up casual and activewear during lockdown, with the business expecting profits at the top end of its forecasted range.

In its latest trading update, the online fashion retailer revealed that annual pre-tax profit is likely to come in at the upper end of market expectations after the company recorded a 10% increase in sales for the four months to the end of June.

Group sales over the period jumped to a little over £1 billion, up from £919.8 million last year, with retail sales up 10% to £983.3 million. Meanwhile, UK retail sales slid 1% to £329.2 million and US sales edged fell 2% to £124.9 million, while international sales pushed up 17% to £654.1 million.

‘Our performance in P3 shows that we are delivering against this aim despite the tough economic and social backdrop,’ ASOS CEO Nick Beighton said. ‘We have learnt a lot and adapted quickly, and ASOS finishes the period with improved underlying profitability.’

‘While we remain cautious about the consumer impact of Covid-19 looking forward, we are on track to deliver strong year-on-year profit growth and to return to positive free cash flow for the full-year,’ he added.

Covid-19 helps online sales surge at ASOS

The retailer’s strong performance in the face of challenging market conditions means that the company does not ‘foresee a material investory risk or write-off requirement relating to Covid-19’, with the business planning to repay cash to the UK government for furloughed workers.

‘As we said at HY results, sales were circa 20 to 25% lower when those measures were first introduced,’ ASOS said in its latest trading update on Wednesday. ‘We are therefore pleased to have delivered 10% sales growth for the period overall.’

‘This performance was supported by good new customer acquisition, strong growth in 'lockdown' product categories (casualwear, activewear, face and body), an overall improvement in underlying demand and beneficial returns behaviours showing more deliberate purchasing,’ the company added.

ASOS: Technical Analysis

Shares in ASOS are down by nearly 5% in today’s session, pushing below the 20-day moving average (SMA) and look poised to break below the 50-day SMA next and potentially the ascending trendline of support, according to Victoria Scholar, presenter and market analyst at IG.

‘Lately the stock has been trying to push above key resistance on a number of occasions at £35.60 suggesting there are some profit takers in the market following the stock’s stellar 245% ascent since the start of April,’ Scholar said.

‘July’s price action has been more range bound stuck between £30 and £35 roughly, suggesting a pause for ASOS before its next move. A break out of the range could provide some clues into its future trend direction.’

With today’s red marabuzo daily candle combined with negative divergence from the RSI momentum indicator, technical analysis suggests it could be more likely to break on the downside.

A more bearish case for the stock could be reignited with a push below its ascending trendline of support and a break below the psychological £30 round number, she added.

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