ASOS Jumps 19% Despite Profits Slumping 68%

Profits dived 68% to £33.1 million, sales grew 13% to the year end in August and revenues smashed £2.7 billion.

Profits in ASOS dived 68% to £33.1 million on the year whilst sales grew 13% to the year end in August and revenues smashed £2.7 billion.

Why such heavy losses?
ASOS will be glad to put the past financial year behind it. The eye watering losses come after a year of transformation at a large cost. ASOS spent heavily on installing robots in its warehouses and expanding its facilities in US in a sizeable transformation across two continents. By its own admission ASOS underestimated the cost and complexity of becoming an international player. 

After two profit warnings across the year, the dire full year profit was in fact in line with expectations. The share price was down 50% from 12 months earlier, when it traded at 5000p. At the close yesterday ASOS was down at just 2560p. However, despite the massive slump in profits, the share price has jumped 19% in early trade. 

Why the rally?
Investors are optimistic that after expensive restructuring across last year, ASOS is in a better position to face the challenges ahead. There is hope that these results represent a line being drawn under last years’ troubles. 

So Is it enough to push shares back towards £50?
Whilst ASOS has enjoyed rapid growth across recent years, competition is heating up from the likes of Boohoo and Next. Gone are the days when ASOS had the online fashion marketplace to itself.  There is still much work to be done for ASOS to regain it online crown. Given the increasingly competitive environment and consumers potentially reining in their spending ASOS could struggle to reach its former glory.

Levels to watch:
ASOS has jumped 19% in early trade talking it above its 200 ma, whilst it already traded above it 50 sma & 100 sma. The share price has broken out of the channel that it has traded in since mid-July. We would now look for a move above 3400p, which could open the door to resistance in the region of 4050-4100p. On the downside a drop back below 2790p could open the door to strong support at 2300p.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.