LONDON (Reuters) - ASOS said it would have to step up spending on technology and logistics to help maintain its lead in the online fashion pack, with the extra costs taking a toll on its elevated share price.
The British company, which targets style-conscious twenty-somethings, increased its capital expenditure (capex) forecast after reporting a 27 percent rise in sales to 1.13 billion pounds ($1.60 billion) in the six months to the end of February.
ASOS said capex for the full year was now expected to be 230-250 million pounds, higher than the 200-220 million pounds it predicted in January. Investment will remain at the higher level in its next financial year.
Investors were unimpressed by the higher costs, sending its shares down 4.7 percent to 6,698 pence at 0945 GMT.
The company, which is still listed on London’s junior AIM market, has an eyewatering price-earnings ratio of 92. Its market capitalisation of 5.9 billion pounds is more than 1.5 billion pounds higher than that of retail stalwart Marks and Spencer.
ASOS Chief Executive Nick Beighton said the company was trading strongly, with visits to its site exceeding 1 billion in the six months.
“Alongside our investment in our people and our technology, we are accelerating investment in our distribution and logistics, laying the foundation for 4 billion pounds of net sales,” he said.
Beighton said the extra money was needed to keep upgrading its 200 localised websites, and incorporate more artificial intelligence into services like its recommendations engine and visual search.
It will also open its warehouse in Atlanta, United States, in July, three or four months earlier than planned, he said.
ASOS, like its online fashion rivals Zalando and Boohoo.com , has focused on rapid sales growth through investment, prizing market share above all.
Germany’s Zalando guided to higher capex last month, also hitting its shares.
ASOS’ shares had risen 29 percent in the last 12 months but Wednesday’s drop wiped out all the gains made in 2018.
Analysts at RBC Capital markets, who have an outperform rating on ASOS, remained bullish, saying it could deliver compound annual earnings per share growth of 28 percent over the next three years if its margins remain stable.
“Management will continue to prioritise market share gain and reinvest operating leverage into enhancing the proposition, which we believe is the winning strategy in the internet space,” they said.
ASOS reported pretax profit of 29.9 million pounds, just shy of average market forecasts of 30.8 million pounds.
It kept its forecast for around 25-30 percent reported sales growth for the year unchanged, along with its target of an operating profit margin of about 4 percent.
($1 = 0.7046 pounds)
Editing by Kate Holton/Keith Weir