Online fashion retailer shares ASOS (LSE: ASC) had a bad run. Yesterday, the stock fell 13% after the company released its full-year results for the year ended August 31st. Over the course of a year, the share price has fallen by less than 50%.
The performance of this share price is very disappointing for ASOS investors, I included. No one likes to see their investments fly like this. So what’s the best move now? Will I sell my ASOS shares, hold on to them, or buy more?
ASOS: Full year results
Yesterday’s results contained something positive in my mind. For example, full-year revenue was 22% healthy at 3. 3.9bn on a constant currency basis. Most retailers will kill for this kind of top-line growth.
Another highlight was the increase in the number of active subscribers. It grew 26% year-on-year to reach 26.4 million customers.
These statistics suggest to me that the company is still moving in the right direction.
Why ASOS share price has crashed
Although there were definitely some negatives in the report. For example, total margins for the year declined by 2% to 45.4%, driven by higher freight and Brexit-related tariff costs, merchandise mixes, FX headwinds, and increased customer investment.
ASOS said it expects supply chain pressure to continue in the first half of this fiscal year. This means more lead time and limited supply to several of its partner brands.
Another downside was the short-term revenue outlook. Due to tough comparisons in the first half of the year, H1 revenue is estimated to be in the mid-unit range only. Meanwhile, pre-tax profits for the coming year are expected to be much lower than analysts had predicted.
On top of all this, the company has announced that CEO Nick Beaton is about to resign. At the moment, it’s not a queuing queue. This is certainly not ideal.
Overall, it’s not hard to see why ASOS share prices fell yesterday.
Looking at these results and perspectives, it is clear that ASOS faces some challenges at the moment.
However, the point is that most companies in the industry are facing very similar challenges. After a huge year for e-commerce last year, revenue growth across this sector has slowed down for comparative reasons.
Meanwhile, supply chain challenges and high costs are hitting profits across the industry. We’ve seen a similar trend in several major clothing companies recently, including Nike And Buhu.
I think these are probably short-term problems. Over time, we should see revenue growth normalize and reduce supply chain challenges and reduce high costs.
Let me go now
So, what am I going to do with my ASOS share? I’m going to hold them and I can buy more.
In the end, I still like the company. I think it provides a great service and I hope it will recover from the short-term disasters it is experiencing now. I think the story of growth here is still intact. After all, revenue has grown 63% in just three years. Looking ahead, ASOS b is targeting annual revenue of 7bn.
Of course, there are a few risks to keep an eye on. The supply chain challenge may last longer than expected. Competitors can steal market shares. The lack of a CEO adds to the uncertainty.
Overall, however, I think ASOS shares offer an interesting long-term risk / reward right now.
Edward Sheldon owns shares in ASOS and Buhu Group. Motley Flowers is the owner of UK shares and has recommended Nike. Motley Fool UK is recommended by ASOS and Boohoo Group. The opinions expressed in the companies mentioned in this article may differ from those of the authors and therefore the official recommendations we make on our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.