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Why I think the ASOS share price will rise in 2020 after a poor 2019

The name ASOS (LSE:ASC) resonates with most people in the world of fashion. The company was incorporated in 1999, and within two years ASOS was floated on the AIM (Alternative Investment Market) on the London Stock Exchange.

Over the years, ASOS began to grow outside of the UK, offering its products to customers in other countries around the world. Customers in the USA, France and Germany were able to order all their favourite items from the ASOS website by 2010. The year after, websites were launched for those living in Spain, Italy and Australia. In 2013, it launched online stores for both Russia and China.

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ASOS hit a high point in November 2017 when it overtook Marks & Spencer with a market value of £4.89bn.

Profit warnings, warehouse and IT issues result in share price decline

In 2018, ASOS issued two profit warnings, citing price cutting to match rivals had not increased sales as expected, coupled with an overhaul in infrastructure. To put into perspective, the share price in March 2018 stood at 7730p, before declining sharply to 2128p by mid-December.

ASOS made a pre-tax profit of £33.1 million in the year to August 2019 – in line with July’s guidance of £30-£35 million but down sharply from £102 million in 2017-2018. However, it is worth noting revenue rose 13% to £2.73 billion in this period.

Sales in the UK were unaffected; however, issues in two new hubs – in Berlin, Germany and Atlanta, USA – experienced different issues that affected growth. Berlin saw technology improvements as manual order processing changed to automated processing, which caused issues, and Atlanta failed to keep up with customer orders and ran out of stock.

How ASOS can bounce back after a tough year

ASOS can bounce back due to the growth plan that, despite operational issues last year, continues to remain intact. The US market is key to the revival, with my research concluding that ASOS does not have a competitor who can offer the wide range of products alongside a great user shopping experience that ASOS can. The US accounted for only 13% of sales last year.

The key driver, sales, were up in the UK by 15% in the 12-month period, 9% in the US and 12% in the EU. Orders have increased impressively by 14% year on year group-wide. The ASOS leadership team are also making all the right noises about global growth, which provides further confidence in the ASOS journey moving forward.

Black Friday 2019 was a much better year compared to 2018 as ASOS revealed overall sales grew 20% to £1.1bn in the four months to 31 December 2019, up from the 13% growth recorded in the year to 31 August 2019. Retail consultancy Retail Economics said: “These figures show that the retailer is back on track. Past investments in digital and logistics infrastructure improved their range and availability, showing early signs that it’s beginning to pay off.”

I believe the recent figures and investment in infrastructure represent lessons learnt as well as a growth plan beginning to bear fruition internationally and locally, which will mean an upturn in the ASOS share price.

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Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.