Asos shares experienced a second consecutive day of double-digit increases on Friday morning after the online fashion retailer revised its profit outlook upwards.
The company, whose stock price previously plummeted to a 17-year trough earlier this month, informed investors of an anticipated ‘significant improvement in profitability’ for the first half of the year. This optimistic forecast is attributed to reduced markdown activity, a greater proportion of full-price sales, and implemented cost-saving measures.
Asos has navigated a challenging trading period following the Covid-19 pandemic, marked by a sharp decline in both sales and customer numbers from the highs experienced during lockdown, leading to substantial stock clearance expenses.
The group still anticipates a 13 percent decrease in total sales for the first half. However, adjusted earnings before tax are now expected to surpass market forecasts of £34 million.
By late morning, Asos shares had surged by 22.6 percent to 312.6p, building on an almost 11 percent rise on Thursday. This surge was partly fueled by speculation that Danish billionaire Anders Holch Povlsen might be preparing a takeover bid.
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Povlsen has increased his stake in Asos from 27 to 28 percent, nearing the 30 percent threshold that would necessitate a formal takeover offer.
Asos shares have surged in recent days but trade almost 95% below their February 2021 peak
Povlsen is currently the largest shareholder in Asos, while Frasers Group, owned by Mike Ashley, holds a 22 percent stake. Any potential acquisition could see Povlsen competing with the prominent tycoon.
Despite recent gains, the group’s shares remain 8.5 percent lower compared to the previous year and are still almost 95 percent below their peak value in February 2021.
Asos credited the recent improvement in full-price own-brand sales to its ‘market-leading’ test and react model. This agile system enables the company to place orders in smaller quantities, facilitating faster production turnaround.
The company stated that over 15 percent of own-brand sales are attributed to this model, ensuring Asos can ‘offer the most exciting product and set the trends for its fashion-loving customers’.
Brokerages Upgrade Asos Stock Rating
Analysts at Peel Hunt commented that: ‘The crucial factor for Asos is to re-establish the relevance of its platform.’
They added: ‘Success in own-brand sales, enhanced sales momentum, and indications of growth in customer frequency and active user numbers will be the key indicators of success, in our assessment.’
Peel Hunt further noted: ‘In the interim, restoring gross margins to the high 40s and generating positive cash flow should maintain the company’s progress.’
The brokerage firm subsequently upgraded Asos from a ‘hold’ to an ‘add’ rating, setting a target price of 375p.
Shore Capital analyst Katie Cousins also revised her rating for Asos, upgrading it from ‘hold’ to ‘buy’.
She stated: ‘While we maintain a degree of caution regarding market pressures and evolving consumer trends, the recent balance sheet adjustments and advancements made by the Group to bolster profits are encouraging.’
Cousins further explained: ‘Furthermore, the share price decline to levels last seen in 2008… [provides] a more favourable entry point, adequately incorporating the prevailing market risks in our perspective.’