What's going on?
UK-based online fashion retailer ASOS reported well-received annual results on Wednesday, sending its shares jumping 16% and its investors (probably) shopping for a new party dress.
What does this mean?
Six months ago, ASOS toned down its profit expectations for the year as it announced more spending was needed to keep growing the platform. Cuban heels just don’t cut it when it comes to ecommerce IT.
The lower expectations served as a reality check for investors who’d nicknamed ASOS “the King of AIM” thanks to its stellar rise to the top of that stock index over the past decade. But Wednesday’s better results, which were driven by more new customers using the site, showed that ASOS can still warm the hearts of investors as well as their heads.
Why should I care?
For markets: Normal service resumed for ASOS.
Prior to Wednesday, ASOS shares had fallen 27% in 2018. The strong positive move following results may well indicate investors are slipping back into ASOS after the minor fashion disaster earlier this year. Better sales growth is likely seen as a sign that all those infrastructure investments are paying off – and that next year’s (financial) collections may go down well too.
The bigger picture: How about we settle this on the runway?
Fashion retail can be a tricky business. Not only is ecommerce forcing traditional retailers to change their business models (like House of Fraser) and take big hits to profit (like Debenhams), but even Mother Nature is a threat: just look at what the summer heatwave did for Superdry. Businesses like ASOS, able to quickly market fast fashion directly to customers’ phones, have the advantage of being super reactive, giving fashionistas what they want, when they want it – and making a tidy profit at the same time.