Fashion forward – Asos has ambitions for big expansion

In addition to its core clothing business, Asos has started a cosmetics line. Photograph: Suzanne Plunkett/Reuters

Nick Beighton may be a chartered accountant but his typical work attire is more smart casual than beancounters’ suit. Which is highly appropriate since he is the chief executive of online fashion juggernaut Asos, which specialises in supplying the latest trends at the click of a mouse or tap on a phone screen.

Despite being listed on the London stock exchange’s junior market, Aim, Asos is valued more highly than the likes of Marks & Spencer as well as supermarket groups Sainsbury’s and Morrisons. It seems to have no desire to jump up to a full listing, with all the costs and management time that involves. But its plans elsewhere are ambitious, with a target of 25-30% revenue growth this year.

Part of this will come from expanding rapidly, both in the UK and overseas, with total investment this year expected to reach £200m.

In the past, the company has had problems with warehouse fires and reports of poor working conditions. Now it is beefing up its sites, including its London headquarters – a building in Camden known for its black Egyptian cat statues. A new European hub is being built in Germany, and by next year millennials in the US will receive their Asos goods from a dedicated £30m warehouse in Atlanta rather than having them shipped from the UK, which the company believes should give a big boost to its business there.

It is also moving into new product areas, including make-up and so-called activewear, and analysts at City broker Stifel believe this could just be the start: “Asos maintains a fashion focus, although it recently expanded into beauty. What could be next? We speculate homeware, supported by the 3D printing technology revolution. From there, the sky is the limit.”

Historically the group has suffered from growing pains, as increasing sales outstripped its ability to fulfil them

Nicholas Hyatt, Hargreaves Lansdown

It has also introduced a try-before-you-buy option and same-day delivery, and is increasing its advertising. JP Morgan analysts point to the fact that it has been splashing out on billboard advertising associated with the beauty launch and the activewear campaign, adding: “We also note that Asos is launching a TV advertising campaign in France (perhaps highlighting the success of the UK billboard advertising efforts).”

But there are challenges. Competition is intense and increasing, not least from the fashion ambitions of Amazon (which was once said to be interested in buying Asos).

And every time it is praised for an initiative – using plus-size models on its website, for example – it seems there is also a fashion misstep which is instantly seized upon by a sarcastic media. There is even an Instagram page devoted to ridiculing its creations.

There is also the question of finding a new finance director after Helen Ashton announced last month she was stepping down. The search for a replacement is under way, but meanwhile Beighton will take on that role as well. So he will be front and centre when Asos releases half-year results on Wednesday. Analysts are expecting profits to rise from £27.3m to just over £30m, although growth could be slowed by the bad weather that hit all retailers earlier this year.

And its investment plans could also knock back profits, says analyst Nicholas Hyatt at Hargreaves Lansdown. But he adds: “Historically the group has suffered from growing pains, as increasing sales outstripped its ability to fulfil them … In the longer term, building scale is key to driving profitability. Asos deserves to trade at a premium [to traditional high street retailers] but it also increases the pressure to continue delivering knockout sales growth. The market will punish a slip harshly.”