ASOS’s profit disappears and Tesco boss delivers the goods

“The FTSE 100 took a breather on Wednesday as investors await the next updates from the European Central Bank and the US Federal Reserve.

“Vodafone was among the key risers on the UK blue chip index, with Reckitt Benckiser heading the fallers.

“Asian shares were down following new trade tensions, albeit concentrated on the US and the EU, and the fact that the International Monetary Fund cut its global growth outlook again,” says Russ Mould, Investment Director at AJ Bell.

ASOS

“The retailer’s profit has gone up in smoke after suffering hefty costs largely linked to investment in warehousing. However, the company had already warned about trading being affected by heavy discounting and fulfilment issues in the US so seeing the earnings decline in print shouldn’t be a surprise.

“The important point from today’s announcement is that life hasn’t got any worse with ASOS maintaining its 2019 earnings and spending guidance. That will come as a relief to the market.

“Many companies can only dream of delivering 14% sales growth but ASOS chief executive Nick Beighton says the retailer is capable of much more.

“The pressure is on for ASOS to sustain its reputation of fast growth and management will be hoping that the current hiccups will go away without any more shocks.

“Recent news that ASOS is going to get tougher on product returns would suggest Mr Beighton and his team are focused more on financial discipline.

“Clamping down on people returning goods after wearing them once should help to improve the company’s cost efficiency. However, it will have to be careful not to alienate shoppers who like the idea of being able to buy different sizes of a certain item and then send back the ones that don’t fit.

“ASOS needs to find a way to sustain decent sales growth while also giving customers what they want. At the same time it also needs to contend with growing pains such as making sure its business is running smoothly in different parts of the world while it continues to invest heavily.

“If one was to pick other holes in the latest results, it would be slow progress in Europe where it has now cut pricing to try and stimulate more sales. Germany and France are the real trouble spots.”

Tesco

“Will Dave Lewis ride off into the sunset now he has achieved in his own words ‘the vast majority’ of his turnaround goals?

“After all, ‘Drastic Dave’ was brought in from Unilever as a Mr Fixit to repair a business which had been badly damaged by a loss of focus, declining sales and an accounting scandal.

“And the commentary in Tesco’s latest results do feel like a bit of a ‘my work here is done’ type statement. Possibly his biggest strategic call, the acquisition of wholesaler Booker made a big contribution as annual results beat expectations.

“The core grocery business is ticking along nicely, profitability has improved markedly and the prospective threat from an Asda-Sainsbury combination is receding in the face of regulatory opposition.

“Notably, increased cash generation means the company is in a position to be increasingly generous with its dividend and pay down debt.

“Tesco will recognise that it cannot rest on its laurels, with the German discounters Aldi and Lidl continuing to snap at its heels and challenges posed by the current uncertain political backdrop in the UK.”

These articles are for information purposes only and are not a personal recommendation or advice.