Asos annual profits fall 14% as 'green shoots' seen from pricing investment - UPDATE

Annual profits were not quite as bad as feared as online fashion retailer Asos put a troublesome year to bed, although significant investment in international pricing is likely to hold profits back for the next two years.

The company has issued three profit warnings in the last seven months, and recently warned that profit for the next financial year was expected to be similar to this year due to the pricing investment.

On a conference call to reporters on Tuesday morning, chief executive Nick Robertson revealed there may be a "couple of years of flat [profits]", adding that he expected a "small increase" in the second year. He added that growth in earnings before interest and tax (EBIT) was being guided to 4%-5% for the next two or three years.

In the year to August, profit before tax fell 14% to £46.9m, with analysts expecting a figure around £45m, as group revenue increased 27% to £975.5m. Diluted earnings per share fell 10% to 44.5p.

The number of active customers was up 25% to 8.8m with the average basket value only 3% higher to £62.8.

Profits were hit by a June fire at its Barnsley warehouse, the strengthening of the pound hitting local pricing of its international businesses, and major investment in warehousing and its start-up business in China.

With cash and equivalents of £74.3m in the bank, up £3.2m in the year, management intend to continue this heavy investment in the business.

"We are in a period of major investment that comes at a short term cost, but the medium-term benefits will be significant," Robertson said in a statement.

During the year ahead, Robertson and Nick Beighton, who has been promoted from finance director to chief operating officer, intend to counteract the strength of sterling by making "significant investments" in Asos's international pricing and proposition, as well as continuing to invest in logistics infrastructure and technology platforms.

"This will mean profit for the next financial year to be similar to this year, with the new financial year representing a continuation of our medium-term build phase, to provide the platform to reach our next staging post of £2.5bn sales."

Robertson later said that the pricing investment in Australia had already seen "green shoots" of some recovery.

Beighton's move to COO, effective immediately, will see him add responsibility for retail and international to his existing responsibilities for finance, IT, supply chain and logistics, freeing up Robertson to focus on growth strategy, customer experience and marketing. The company has started a search for a new CFO.

Broker Liberum said beating consensus counted for little after a recent profit warning and with consensus earnings estimates falling by over a third since March.

"Infrastructure investment continues to bite and there are also no immediate indications when the company can properly expect to leverage this investment. For the bulls of the stock, the investment case is based on pain now for a future gain.

"We base our sell case on the fact that there is little visibility on when we might see such a gain. In the meantime, the sole support for what remains a stratospheric rating, the high sales growth, is dwindling."