ASOS struts its stuff, and Mothercare CEO departs

“The markets aren’t able to shift the impact of the coronavirus for long apparently, news of Chinese city Wuhan being in lockdown spooking investors in Asia and translating into a weak open for the FTSE 100,” says AJ Bell Investment Director Russ Mould.

“The market’s mood isn’t helped by the Trump administration’s apparent threat of a trade war with the UK over its plans for a digital tax on US online giants.

“Mining stocks, which are particularly exposed to China’s economic fortunes given its position as leading consumer of the world’s commodities, are weak this morning."

ASOS

“Online fast fashion retailer ASOS got to strut its stuff for the first time in a while as revenue for the four month period, including Christmas, beat expectations.

“For some time the company has been outshone by its upstart rival Boohoo so investors will be relieved it has enjoyed similarly strong trading of late – with a record performance during the Black Friday trading event.

“Today’s update also underlines the continuing trend for the internet to take sales from the high street.

“International business is making a growing contribution for ASOS, which is encouraging for the long-term future of the group, and it no longer seems to be dogged by the IT and warehousing issues which contributed to a plummeting share price and more than one profit warning in 2019.

“Less positively the company has been engaging in the dreaded ‘investment in customer acquisition’, retail speak for cutting prices to get people to buy products from its site or app.

“Having got growth back on track, the next challenge for management is to boost the company’s wafer-thin margins.

“This could be challenging, the emergence of ASOS is one of the big UK stock market success stories of the 21st century but it now has to navigate a much more competitive and therefore unforgiving landscape.”

Mothercare

“A lot of energy has been put into getting baby product chain Mothercare through a pretty cataclysmic period.

“It’s hard not look back and think that all this effort and shareholder pain could have been avoided if the company had just accepted a £266m offer from US rival Destination Maternity back in 2014.

“The latest moves include the departure of CEO Mark Newton-Jones, who talked a good game over his five-and-a-bit tenure but struggled to deliver. He will replaced on an interim basis by his current finance chief Glyn Hughes. An apparent reward for Hughes’ sterling efforts in trying to repair the balance sheet.

“The business continues to work through its financial problems and investors remain in the dark on to what extent the value of their existing holdings will be diluted.

“Having shuttered all of its UK stores Mothercare hopes to emerge out the other side of this painful process as an asset-light franchise business, its prospective five-year agreement with Boots being a step in this direction.

“The company still has some choppy waters to navigate but you could see this working in the long run given the residual strength of the brand and its position in an attractive niche, where new parents and their families are often willing to spend significant sums of money.”

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


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.