ASOS plans China launch in October

Reuters News
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Posted: Apr 30, 2013 7:36 AM

By James Davey

LONDON (Reuters) - The British online fashion retailer ASOS said it would launch a Chinese-language website in October, part of a strategy to be a global player and deliver over 1 billion pounds ($1.6 billion) of sales by 2015.

Shares in the firm, whose celebrity fans include United States first lady Michelle Obama, rose 4.7 percent on Tuesday after it posted an 11 percent rise in first-half profit and also said it would launch a Russian-language website on Wednesday.

While the UK's traditional high street stores have suffered as consumers fear for their jobs and see incomes squeezed, online retailers are faring far better. ASOS in particular has bucked the trend, helped by overseas expansion that has already seen it establish websites in the United States, France, Germany, Spain, Italy and Australia.

In particular, it has tapped into demand from value-seeking, technology savvy, twenty-somethings for both branded and own-label products.

ASOS will use a different model for China from that used for its other overseas operations, which sell products shipped from a huge distribution center in Barnsley, northern England.

ASOS China will have a standalone technology platform, a local third-party distribution center, local delivery solutions and payment methods, and a larger in-country team.

Initially, the website will offer about 10 percent of ASOS's full range of 60,000 items, a share that will expand as the Chinese business grows. Set-up costs will be 8-12 million pounds over two years.

"We want to be truly global. We can't be truly global unless we're in China, and this is the start of that journey," Chief Executive Nick Robertson told Reuters. "It's a build-and-grow, learn, steady-as-she-goes type of approach."

Customers from Russia and China already access ASOS's UK site, putting them in the firm's top 10 markets.

SHARES JUMP

Shares in ASOS, which have more than doubled over the last year, were up 96 pence at 3,167 at 7:20 a.m. ET, valuing the business at 2.55 billion pounds.

"As comparables soften in H2 2012-13, we think that ASOS shares will see positive momentum," said Panmure Gordon analyst Jean Roche.

But she cut her 2013-14 and 2014-15 earnings forecasts by 4-5 percent to account for expected operating losses in China.

ASOS also announced a new long term incentive plan (ALTIP) for executives and senior management.

A "target" performance level of the scheme implies sales of 1.0 billion pounds for the 2014-15 year, while a "stretch" level implies sales of 1.3 billion pounds.

Robertson, who owns 9.4 percent of ASOS's equity, said participants had together invested 5 million pounds in the scheme.

If "stretch" targets were achieved, he said, the payout would mean a maximum dilution of 1.5 percent of ASOS's issued share capital - worth about 39 million pounds at Tuesday's prices.

"We'd have to double the size of the business," he said.

ASOS, which targets young women looking to emulate the designer looks of celebrities such as Nicole Scherzinger and Cara Delevingne, made an underlying pretax profit of 25.7 million pounds in the six months to February 28.

That compared with analysts' consensus forecasts of 25 million pounds, and was up from 23.1 million pounds in the same period of 2011-12.

The firm said six-month group revenue increased 33 percent to 359.7 million pounds, with trading momentum strong.

However, retail gross margin was 0.6 percent lower, partly reflecting lower prices and a higher proportion of UK sales, which attract 20 percent VAT sales tax.

The firm said UK retail sales rose 26 percent to 137.6 million pounds, while overseas sales increased 39 percent to 214.7 million pounds. ($1 = 0.6454 British pounds)

(Reporting by James Davey; Editing by Kevin Liffey)