Asos gets Australians excited and City divided

Asos Plc, the U.K.’s largest online-only fashion retailer, rose the most in almost five months after reporting second-quarter revenue that beat analysts’ estimates as sales accelerated at home and abroad. Additionally, the online fashion giant got its Australian customers’excitement back by cutting prices.

“Asos are back,” analysts at Exane BNP Paribas said in a note to investors. “With comparatives easing and momentum returning, we expect news flow to get incrementally more positive from here.” This commentary actually sums up the City’s shared view on the company’s last performance update.

Retail sales growth rose to 19 percent in the three months to February, 28 from 8 percent in the previous quarter, the London-based company said in a statement Thursday. That compared with the 15.5 percent median of estimates compiled by Bloomberg. As a results, ASOS shares climbed 13 percent in London.

Local pricing pays off in Australia and other overseas markets

Asos has introduced local pricing to improve performance abroad after currency movements hurt its business. The UK online retailer's decision to cut prices in markets like Australia to reverse declining sales has paid off. Thus, ASOS was forced to cut prices in Australia by about 20 percent late last year and offer free returns after website traffic and sales plunged, hurt by the weaker Australian dollar and increased competition from online and local competitors.

In a trading update overnight, ASOS said sales in Australia and other markets outside the UK, Europe and the US rose 4 percent, or 10 percent on a constant currency basis, after falling by between 5 and 6 percent in the two previous quarters. However, this was well below the rate of growth in the UK (up 30 percent), the US (up 24 percent) and Europe (up 13 percent), with weakness in Russia offsetting gains in Australia.

On the wake of the news, ASOS stock rose 423 pence to 3,702 pence, the biggest advance since October, 21. That took the advance to 44 percent this year, giving the company a market value of 3.09 billion pounds, highlights Bloomberg.

City divided on Asos figures

Despite the welcome comeback, City went to sleep divided on their views on the company and its performance and trading.

"We see this is an encouraging update, demonstrating a positive customer reaction to price initiatives while ASOS continues to land substantial operational change, including zonal pricing, the upgrading of the Barnsley DC [distribution centre/warehouse] and the exit of Lister Hills storage," says Andrew Wade, an analyst at Numis Securities who currently has a target price of 4,000p on ASOS shares, reports ‘Interactive Investor’. He added that, consequently, "We leave our estimates unchanged and, as comps weaken and the benefits of zonal pricing come through, continue to expect top line growth to accelerate through FY15."

In disagreement is Alistair Davies at Investec, who argues that "ASOS is on the start of a journey towards its next staging post, which we believe is not without risk, and in our view the current valuation implies ASOS will be able to continue to deliver long-term operational leverage, which we fear will prove hard to come by."

In the meantime, Asos plc (LON:ASC) had its price target bettered up by Deutsche Bank from 2,400 pence to 3,500 pence in a research note issued to investors on Friday. The firm currently has a ‘hold’ rating on the stock.

Meanwhile, analysts at Investec reiterated a sell rating and set a lower target price for the stock, at 2,150 pence in a research note on Thursday. Nearly doubling their price target on the shares were analysts at Numis Securities Ltd, who reiterated a ‘buy’ recommendation at 4,000 pence apiece. Analysts at Canaccord Genuity raised their price target on shares of ASOS plc from 2,520 pence to 3,250 pence and gave the company a ‘hold’ rating in a research note on Thursday. Finally, analysts at N+1 Singer reiterated a ‘sell’ rating and fixed their price target on shares of ASOS plc at 2,650 pence in a research note on Thursday.

To date and after the trading update, five research analysts have rated the stock with a ‘sell’ rating, seven have given a ‘hold’ rating and eight have given a ‘buy’ rating to the company’s stock. The company presently has an average rating of ‘hold’ and an average target price of 3,150.55 pence. The company’s market cap is 3.35 billion dollars.