ASOS warns full-year sales growth will be at bottom end of guidance

Shares in fashion retailer ASOS tumbled on Thursday as it warned that full-year sales growth would be "towards the lower end" of its previous guidance for between 25% and 30%, but analysts argued that the drop in the share price was a good buying opportunity.

In a trading update for the four months to 30 June, the company said retail sales rose 22% overall to £802.7m, or 21% at constant currency, with UK sales up 23% to £288m. Meanwhile, international retail sales were 21% higher at £514.7m.

Although ASOS said it expects sales growth to be at the lower end of its previously announced range, full-year pre-tax profit was expected to be in line with consensus, while capex guidance was unchanged at between £230m and £250m.

Chief executive officer Nick Beighton said: "I am pleased with the way the business has traded over the last four months and we are on track with our plans for the year. We delivered good sales growth, particularly in the UK, better than planned gross margin alongside significant progress on our infrastructure investments.”

Beighton said trading in the final quarter has started well, particularly in terms of full price sell through.

"We remain confident of delivering another year of strong growth," he added.

Spreadex analyst Connor Campbell said: "Of course, most companies would kill for that kind of growth; however, ASOS investors are a tough lot to please, so accustomed to the firm’s double-digit gains that news of a 22% rise in UK sales and a better than forecast gross margin barely registers."

Meanwhile, Liberum noted that total retail growth at constant currency was below consensus expectations of 25.3%. However, the brokerage said it was encouraged by current trading and sees any further pressure on the share price as a good buying opportunity.

RBC Capital Markets said the share price pull-back on the back of softer sales growth "creates an attractive opportunity to buy into a fast-growing, structurally and competitively well-positioned fashion retailer".

The bank reiterated ASOS as its top pick, noting it offers a potential 32% upside.

"The shares are trading on 1.6x 12-month forward EV/sales, 20% below its historical average (2.0x) despite unchanged fundamentals and an expected delivery of 25% EPS compound annual growth rate over the next three years," it said.

At 1230 BST, the shares were down 11% to 5,808p.