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ASOS results could signal Brexit effect on sales

Published 08/07/2016

There are fears shoppers may have adopted a cautious approach in the lead-up to the EU referendum
There are fears shoppers may have adopted a cautious approach in the lead-up to the EU referendum

Online fashion firm ASOS will be looked to for any signs of a Brexit blow to retail sales amid concerns that shoppers took a cautious approach to spending on the run-up to the EU referendum.

The group booked a double-digit hike in half-year profits in April, after a bumper festive season helped UK retail sales lift by a quarter to £289.5 million, while international sales were 24% higher at £359.1 million.

ASOS, which stands for As Seen On Screen, is expected to continue its strong run, but could see sales pegged back by a slip in consumer spending in the wake of Britain's vote to leave the European Union.

Retail sales saw lacklustre growth in June, with a balance of +5% of retailers reporting volumes up on this time last year, from +7% in May, according to the pre-referendum Distributive Trades Survey from the CBI.

However, some analysts are predicting ASOS to capitalise on the fall in the value of the pound, as 60% of its customers and sales come from overseas. Sterling slumped below 1.28 US dollars for the first time since 1985 at one s tage on Wednesday and also dropped as low as 1.16 euro.

Peel Hunt analyst Jonathan Pritchard said: "The pound gives ASOS an opportunity to lower global prices.

"This will be done at pace, and management's expectation is that this will generate a 'halo' effect to drive higher sales in the future."

The group's managers are also eyeing hefty sales targets of £1 billion in the UK, £1 billion in Europe and £700 million the United States.

It comes after the retailer announced in April that it was ditching its Chinese arm, with its half-year results pointing to £1 million in losses from the venture. It previously said it would take a £10 million hit from the closure of the operation.

The City will look for an update on how Burberry could fare in a post-referendum world when the fashion retailer posts quarterly figures next week.

Analysts expect Burberry to signal that it is benefiting from the plunge in sterling, with most of the firm's sales coming from overseas.

Graham Spooner, investment analyst at the Share Centre, said: "Burberry should be one of those companies that benefits from the fall in sterling as its disproportionately large overseas earnings should in theory get lifted."

Experts at broker Jefferies are pencilling in a 10% boost in earnings as a result of a weak pound, flagging that any slowing demand from British consumers will be offset by a surge in Chinese purchasers and tourists.

James Grzinic, analyst at Jefferies, said: "We are of the view that the potential weakening in domestic consumption will be compensated by currency-driven increases in tourism - tourists contribute 60% of Burberry UK.

"The pricing advantage for a Chinese traveller's trip to the UK in its entirety beyond luxury gross purchases does attract. And the passenger growth trends below do suggest expected increase in inbound Chinese travellers."

In May, Burberry saw pre-tax profits crash 10% to £421 million as the company signalled a challenging trading environment for its luxury products.

Chief executive Christopher Bailey also said the group would slash £100 million in costs to help offset difficult trading.

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