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The ASOS share price collapses to 11-month lows! Is now the time to buy?

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A stack of ASOS delivery bags
Image: Royston Wild

The ASOS (LSE: ASC) share price has performed terrifically over the past year. Sure, Covid-19 lockdowns have taken a huge bite out of clothing retailers in that time. But even as we’ve spent less on work and leisure attire, the closure of non-essential retail has played into the hands of the e-commerce giants.

This particular online retailer had soared more than a third in value during the last 12 months to last night. However, the ASOS share price has dropped 14% on Thursday following a pretty frosty reaction to latest financials. The UK retail share fell to its cheapest since August at one point at £38.95 per share.

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Strong sales rise

In a trading statement for the four months to June, ASOS said that retail sales had risen 26% year-on-year to £1.24bn. At constant currencies turnover was up 30%.

In the UK sales at stable exchange rates jumped 60% year-on-year to £526.4m. Meanwhile sales in ASOS’s international territories rose 15% from the corresponding 2020 period to £715.7m. Overseas turnover growth was strongest in the US, up 31% at £144.8m.

Revenues cool, supply issues emerge

However, UK share investors have taken fright on news that trading has slowed down more recently. ASOS described its activity in the final three weeks of the period as “more muted,” commenting that “continued Covid uncertainty and inclement weather, particularly in the UK, impacted market demand.”

ASOS added that it expects trading to remain volatile in the near term given the evolving Covid-19 situation in its markets. Consequently it said that it expects sales growth during the two months to August to be “broadly in line” with the same period last year. Group turnover rose 30% on an underlying basis back then.

Softening sales isn’t the only problem ASOS is facing today though. The retailer said that “global freight capacity shortages and delivery delays coming out of key areas of supply” had continued in the last four months. This, along with adverse exchange rates and an unfavourable product mix caused by Covid-19 lockdowns, meant that gross margins fell 150 basis points year-on-year.

Time to buy ASOS?

The twin threats of growing supply chain problems and the ongoing pandemic are clearly significant to ASOS’s outlook. But these troubles wouldn’t discourage me from adding this UK share to my own stocks portfolio. In fact I’d see the ASOS falling share price as an opportunity to buy.

As someone who buys stocks with a long-term view I think the company remains highly attractive. E-commerce continues to grow at an impressive rate, and ASOS itself added 1.2m more active customers between February and June (it had 26.1m active shoppers on its books as of last month).

I’m also encouraged by ASOS’s decision over the past year to snap up some of the hottest clothing brands and use them to drive future growth. Indeed, ASOS has recently signed a deal with Nordstrom to sell its Topshop-branded products through the US department store’s website and physical stores.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK 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.

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