ASOS reveals plans to DOUBLE profit margins

ASOS shares moved nearly 4 per cent higher today after the online fashion retailer revealed plans to double its profit margins over the longer term.

The firm told investors in a capital markets day presentation that it was forecasting a profit margin of ‘at least’ 8 per cent over the longer term – twice its current medium-term goal of 4 per cent – driven by increased cost and scale efficiencies as it expands.

ASOS said achieving this target would involve adding over £1billion of revenue from its own brands, growing its UK business, and doubling the size of its presence in the US and EU.

Over the next three to four years, ASOS reiterated its target of £7billion of revenues.

ASOS shareholders have endured a rocky time of late, with the shock resignation of CEO Nick Beighton and the company’s issuance of a profit warning sparking a heavy stock price decline in October.

Originally called ‘As Seen On Screen’ for selling copies of clothes worn by stars on TV and film, was founded 21 years ago but it is having a difficult coming of age.

It benefited from the switch to internet shopping during the lockdowns, but its shares have lost more than half their value in the past 12 months.

In its market update on Wednesday, the group, which remains without a CEO, highlighted improved technology and logistics platform as putting the ‘foundations in place to support long-term global growth’.

It also noted the recent acquisition of the Topshop brands as ‘an important global customer acquisition tool’.

ASOS’s target market of ‘fashion-loving 20-something consumers around the world’ will reflect a total addressable market of £430billion globally by 2030, according to the group.

Chief operating officer and chief financial officer Mat Dunn said: ‘ASOS has a clear focus on meeting the needs of our consumers, and we have created a winning offer underpinned by our best-in-class customer experience.

‘Our plan will ensure that we fully leverage our strong, scalable global platform to deliver our ambitions.’

ASOS shares were up 3.5 per cent to 2,665p as of 11.30am GMT, pulling year-to-date losses back to 44.5 per cent.

Equity analyst at Hargreaves Lansdown Laura Hoy said ASOS’s focus on ‘increasing partner fulfilment…holds the key to longer-term success’.

She added: ‘Growth in this higher-margin part of the business is essential if the group’s to meet its goal for operating margins of at least 8 per cent in the longer term.

‘Currently, the segment makes up just a small fraction of total revenue, but ASOS plans to grow that to roughly a quarter.’