Could ASOS shares maintain their upward trend after record interims?

• H1 2020/21 revenues up by 25% year-on-year (YoY)
• Net debt of £163 million eradicated in last 12 months
• Investments in 'Truly Global Retail' and automated fulfilment underway
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ASOS (ASOS.L) posted record interim results last week, buoyed by the surge towards e-commerce during the Covid-19 pandemic. Despite revenues of £1.9 billion and an adjusted pre-tax profit rising to £112 million in the six months to 28 February 2021, ASOS shares have fallen over 5% to prices of £52.40 on 12 April.

Why have exceptional interim results not boosted the ASOS share price?

Although the ASOS share price climbed in the days leading up to its 2020/21 first half (H1) interim update, the stock’s value retracted despite the published results.

The primary reason is the phased reopening of the UK economy. As high streets gradually start to reopen from the latest Covid-19 lockdown, concerns remain regarding the ability of e-commerce giants like ASOS and Boohoo (BOOH.L) to maintain their growth as some shoppers return to buying offline.

Within its interim update, ASOS also stated that it was investing more heavily in digital marketing. All of which could have an impact on medium-term profitability.

ASOS also alluded to its core demographic of millennial and gen Z shoppers, many of whom have been impacted personally by the economic uncertainty of the Covid-19 pandemic. Although disposable income may be constrained, ASOS’ outlook for H2 2020/21 is unchanged, while the H1 results have been sufficient to raise expectations for the full-year forecasts.

Will investments in global infrastructure and pricing maintain the competitiveness of ASOS?

ASOS has been one of the most consistent performers in the FTSE 100 since the onset of the Covid-19 crisis. The interim update confirmed that a better-than-expected H1 2020/21 enabled the company to move from net debt of £163 million to a cash surplus of £92 million. Furthermore, the embedding of the Arcadia retail brands purchased by ASOS (Topman, Topshop and Miss Selfridge to name but a few) is now expected to cost just £10 million compared with previous forecasts of £20 million.

With a cash surplus, ASOS has also sought to invest heavily in underpinning its growth worldwide, whilst improving operational efficiencies. ASOS has invested in its new truly global retail (TGR) programme. This merchandising and retail planning platform has already enabled ASOS to plan and launch new product ranges across its global fulfilment centres and set dynamic pricing structures across global markets.

Its TGR programme is in the process of being embedded within ASOS’ UK-based Lichfield fulfilment centre, while its US-based Atlanta fulfilment centre is slated to be fully automated by 2023.

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