The past two years have been a bumpy ride for ecommerce retailer Asos (ASC). Its share price shot up 70 per cent from its pre-pandemic level when people were in lockdown at home. However, when rising shipping costs started to kick in during the middle of 2021, profit margins started to shrink. Revenue growth has now also slowed against tough comparators and the share price has dropped below where it was before Covid-19 arrived in the UK.
In the four months to the end of 2021, the gross margins fell 400 basis points to 43 per cent because Asos needed to sell slow-moving summer clothes. Air freight has been needed, which is even more expensive than regular shipping costs, which are still around five times higher than pre-pandemic levels.
UK sales performed ahead of expectations, growing 13 per cent, and US sales were up a promising 11 per cent. The company sees the US as a potential saviour and has agreed to launch its brands through US retail business Nordstrom. Headwinds to expansion are coming, though. Energy prices are set to increase by over 50 per cent in the UK.
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