ASOS Continues to Benefit From COVID-19; Improves Profitability, Plans Partner Fulfillment

We are retaining our fair value estimate of GBX 4,040 for no-moat ASOS after the company reported interim results for the six months to Feb. 28. Revenue was up 24% (25% in constant currency) for the first half, which compares with just over 25% we forecast for the full year. Profitability improved significantly as adjusted EBIT margin reached 5.9% from 2.2% a year ago, with continued benefits from a COVID-19-related category mix shift (towards casualwear, activewear, and beauty and away from tailoring and occasionwear) prompting lower returns in the net amount of GBP 48.5 million (42% of adjusted EBIT). Even excluding the positive COVID-19 impact, adjusted EBIT almost doubled from the previous year’s level. We forecast 5%-6% sustainable operating margin for ASOS versus 3.7% on average over the past five years as the business scales.