ASOS Plc (ASC) Earnings Call Transcript & Summary

Good morning, everybody, and thank you for joining our P1 trading update. We'll cover, this morning, the 4 months to the 31st of December. I hope you're all keeping well, and you were able to enjoy Christmas as best you possibly could. In terms of the call, I'll start with an overview of the period before providing a little more detail on what we've seen from our customers in terms of behavior and demand. I'll then hand over to Matt, who'll talk you through the P1 performance in a little more detail, our Brexit planning and some of the moving parts from a financial perspective on what this means throughout the outlook. Following that, I'll take the opportunity to look a little bit further ahead and talk about our supply chain development, including our plans for automating the U.S. facilities. I'll then also hand over to questions. So let me start with a quick overview of P1. This has clearly been a successful period for us, with sales up 23% on a group basis and 24% on constant currency. When we spoke to you in October, we were cautious about the outlook, planning the possibility of further social restrictions, Brexit and the impact this would have on demand. Throughout the period, we didn't see -- we did, in fact, see fast-changing restrictions across our main territories. We also saw an increasing divergent approach to social restrictions, which was both different to lockdown 1 and affected demand in each territory in different ways. Responding to this required a great deal of agility and resilience on our behalf. As these figures demonstrate, the output of the financial performance is better than we anticipated. This is also down to the hard work of our people and the work that they've put in and the investment decisions we took along the way. As these figures demonstrate, the output -- sorry, our performance is also a testament to the strength and resilience of our multi-brand, multi-product platform. We continue to provide the choice and convenience that our customers love as we reshape our product offer accordingly. The strength of our product offer was combined with a dynamic trading, dynamic engagement and strong promotional staff. A particular highlight for me: we ran 3 campaigns across the period, which has so far generated over 6 billion engagements from customers and still counting. The #ASOSInYourWorld campaign, which launched on Black Friday, was the most successful by far, over 2 billion engagements. The results were also underpinned by excellent performances in our warehouses, our supply chain, our technology throughout the period. During Black Friday, we processed up to 2,000 orders per minute through our platform. And at peak, our warehouses reached new daily performance record. For example, in Barnsley, they broke through previous records, achieving a pick rate of 700 -- pick-and-pack rates of 700,000 units a day. I'm really proud of the way our teams have executed our plans throughout the business, and this has enabled us to accelerate growth, accelerate customer acquisition and build momentum through this important trading period. In terms of customer behavior and demand, we saw continued strong demand for lockdown category products, activewear, casualwear and Face + Body. Sales of these categories were up over 60% during the period and now represent a much greater share of our product mix. The mix shift is a change of 11% in comparison to P1 over the last year. These product mix changes, together with a return of more deliberate purchasing from our customers, similar to what we saw during lockdown 1, drove a reduction in our returns rate, which Matt will touch on later. We know our customers value the convenience and choice of our multi-brand, multi-product platform, and we've operated this with greater agility during the period as we pivoted towards more activewear, casualwear and Face + Body, and a more relevant branded product offer. You will remember from our update last year, our core ASOS design brand typically over indexes towards going out product, particularly at this time of year. So as you expect, that moved back in the mix. However, the positioning of our venture brands, including Collusion and ASOS 4505 have continued to see excellent growth rates. Collusion grew almost 100% in the period, while ASOS 4505 grew at 60%. Unfortunately, many of our customers were unable to join the Christmas period in the way they usually do. But our results this morning demonstrate that customers are certainly keen to make the most of the Christmas period. However, as we move into another wave of lockdown restrictions and a very different mentality in January and February, we remain cautious on the customers' motivation to shop for fashion. We are clear the trading environment, consumer demand and customer behavior will all undoubtedly be impacted by the speed and success of vaccinations globally. And ultimately, the corresponding changes to social and travel restrictions. And whilst consumers are increasingly shopping online, the extent of this channel shift through the year will absolutely depend on the restrictions each government puts in place. With that overview, I'll hand over to Matt, who will take through some more detail in P1.

Thanks, Nick, and good morning, everyone. I'll start with a little more detail on performance before updating you on Brexit and then some of the moving parts from a financial perspective and what that means for the outlook. In terms of P1, I'll start with the U.K., where our performance has certainly surpassed our own expectations with 36% growth. Clearly, we benefited from the closure of stores through key parts of the period, but the way we reshaped our customer offer and the way we traded through the period allowed us to fully capture the demand that was available to us in the market. In the EU, trading remained good, up 18% overall. We saw increasingly divergent country-level approach to lockdown, which had a clear impact on customer demand. For example, our 2- beast countries in the region, France and Germany, both closed hospitality venues, but different approaches to closing shops through the second wave. In France, where hospitality venues and shops were both opened together, then both shut simultaneously as restrictions increased, we saw particularly strong growth in line with the U.K. In contrast, we saw more muted growth in Germany, where shops remained open for most of the period despite the closure of bars and restaurants. Within the U.S., a key priority has been improving our products offer in the region. And I'm pleased to say that the effort paid off resulting in improved momentum as we have seen our growth accelerate since the start of this financial year. We are focused on moving products into our U.S. warehouse as global stock availability improved. This was alongside the extension of flexible fulfillment to a greater number of brands held in our U.K. warehouse, following the successful trial at the back end of last year. Finally, within the Rest of World region, a segment that contains a broad range of countries, we saw a mixture of performances. Growth in Australia continued a strong run rate, whilst Russia was more challenging. Overall demand slowed in Russia. And as a result, we saw an increasingly promotional and competitive market. Beyond those 2 countries, we continue to see great growth coming out of the MENA region, with Israel and Saudi Arabia becoming an increasingly significant proportion of our Rest of World segment. Turning now to gross margin. It was about 90 basis points in the period, reflecting 3 key factors: firstly, the continued mix shift towards activewear, casualwear and Face + Body, which are categories that typically have lower gross margins; secondly, some of the investment into customer acquisition through our promotional calendar that Nick mentioned; and finally, increased inbound freight costs due to the ongoing COVID disruption. Turning now to Brexit. We have worked extensively on our business planning over the last few years to ensure we are as well prepared to manage as possible. Our Euro Hub has positioned us well in our preparations for Brexit from the start. But we have also worked within our supply chain to minimize the operational disruption from delays in movement of stock into the U.K. as well as planning to minimize our exposure to unnecessary additional tariffs. From a customer perspective, our customer proposition has not been disrupted with our Euro Hub servicing all of our European customer orders. This means there is no additional cost for our customers, and neither is there any extra friction in the customer experience. In terms of financial impact, we now expect to incur around GBP 15 million of additional tariff costs this year, which compares to the potential impact of GBP 25 million we provided in October if a deal wasn't reached and WTO tariffs applied. The additional cost principally arises from country rules of origin. The first exposure we have is driven by inter warehouse transfers of product between our U.K. warehouse and Euro Hub, where we land product in the U.K. before distributing to Euro Hub. We have been working to maximize our direct to Euro Hub product supply and will continue to do so. But clearly, some exposure will remain. The second driver is the sourcing of product into the U.K. that has been manufactured within the EU and Turkey, but the ultimate country of origin may reside elsewhere. We are working with our suppliers to work through this as well as examining our sourcing footprint to ensure we are sourcing on the most efficient basis in the context of the deal. Let me now move on to talk through some of the moving parts from a financial perspective and what that means for our outlook. There are 4 key elements reflected in our revised expectations for the year. The strength of P1, supported by our increased investment, our expectations for the COVID benefit in H1 and unchanged outlook for H2 and the costs associated with Brexit. Starting with our performance in P1. The better-than-anticipated sales performance in the first 4 months will translate through to strong profitability for the period. This is despite increased investment into customer acquisition and capturing demand through an upweighted promotional calendar, some price investment in Europe and increased investment into marketing. The ongoing financial impact from COVID would also continue to represent a net benefit for us in the first half, driven principally by the reduction in returns rates and associated cost benefits, which more than offset freight and other cost headwinds. Although we extend our returns period until the end of January for peak trade, we have reasonable visibility on what we expect associated returns to be. We also expect, given the current restrictions in place in many countries, similar levels of benefit in January and February. As a result, we expect the associated PBT benefit to be at least GBP 40 million in the first half of the financial year. As Nick has already mentioned, our performance in the second half remains subject to a high degree of uncertainty given the trajectory of the virus and associated impacts on consumer behavior and the likely economic impact on our core 20-something consumer. We, therefore, remain cautious and are leaving our outlook for the balance of the year unchanged. Lastly, we are obviously then absorbing the expected costs of tariffs associated with Brexit into our expectations for the year. Bringing that all together, we now expect our PBT for the year to be at the top end of market expectations. Given those same drivers, I would expect that the PBT split is likely to be weighted towards the first half of the financial year. Reflecting the announcement of our investment into U.S. automation, which Nick will speak about shortly, our CapEx guidance has increased by GBP 20 million to around GBP 190 million. I think we would all agree that 2021 is clearly going to be another very unusual year. So we will be as open as we can and update you as we progress through the year and our visibility improves. With that, I'll now hand back to Nick.

Thanks, Matt. I'd now like to quickly talk through the continued development of our supply chain, which is about laying foundation through our longer-term success. We talked about the investment into the fourth fulfillment center back in October. And last week, we announced more details of that center. For those who missed it, the facility will be located in Lichfield, Staffordshire. And in terms of scale, we expect it to reach about GBP 1.2 billion of net shale throughput from about half the footprint of Barnsley. Further to this, we have taken the decision to begin the automation -- the process of automating our U.S. warehouse. The operational financial payback on this is very attractive, and investment into automation for this facility will help drive further cost efficiencies through our fulfillment, which will both fuel reinvestment back into the customer offer and improve the profitability of our servicing our U.S. customers. Taking learnings from our prior warehouse build-outs, we're beginning to work on these projects well ahead of time, starting comfortably ahead of the capacity requirements. Clearly, this de-risks dependency on go-live allows us time for a gradual buildup and for the teams to operate in the fallow space in that distribution center. And actually, this is the best time for us to commence this work. In terms of time scales, we're working to have the U.S. installation completed to allow testing to be finalized in FY '23, before phase go-live and ramp-up through the back end of FY '23 and into FY '24. As you will be aware, one of our key priorities has been to strengthen our organizational and leadership capabilities. To this end, we have transformed our executive bandwidth over the last 18 months, starting back when Matt joined in April 2019 through to Jose, who joined us this month, as well as now having a strengthened board in place. With the right capabilities in place, together with the approach I've just outlined, we are confident in moving forward with these projects. So to conclude, we are really pleased with what we delivered through the first 4 months of this year. We've clearly been supported by the unusual trading conditions where some of the stores have faced restrictions in their ability to trade. However, we've also worked really hard to capitalize on that opportunity. The way in which we're able to reshape our product offer and trading in such a dynamic fashion is testament to the strength of the operational grip we work to invent. The period has clearly demonstrated how well our multi-brand, multi-product platform resonates to serve our customers, positioning us well for the future as they increasingly choose to shop through online channels. Beyond the impact of COVID, we've driven a strong underlying performance through good financial and operational discipline and continue to drive efficiencies to streamline our operations. Whilst we now expect our performance with the top end of expectations for this year, it's reflecting the strength of our P1 performance, we're not changing the expectations through the remainder of this year. We are building our business, and we are ready to capitalize on these opportunities that may present themselves, but we're also retaining a cautious planning approach what could be a difficult economic year for our customers. Looking further out, we absolutely retain our confidence in the long-term opportunity. That is why I'm pleased to talk to you about our investment plans today. The plans we have in place to continue building out our ASOS brands, our ASOS platform and the ASOS experience position us well to capture the future opportunity ahead. Thank you. I'd now like to hand over to Q&A. Just in terms of admin. If you raise the questions, Alison will post them to Matt and I. And obviously, usual protocol, you'd state your name and bank. Thank you very much.

Great. First question we've got here comes from John Stevenson at Peel Hunt. Active customer growth rates look a little bit muted versus revenue performance in the prior year. Can you talk about churn rates versus new customer sign-ups? Also, how has the active growth performed in the U.S. and the Europe?

I'm going to hand over to Matt, who will talk you through a bit of color on that.

Thanks, Nick, and John. So in terms of active customer growth, obviously, in the prior year, it was extremely strong, I guess, as we accelerated out some of the challenges we had in 2019. So overall, I think we're still really pleased with our active customer growth. Within that, there are 2 dynamics that are pertinent to your question. The first is we've seen really strong new customer growth through the period. And I think that's broad-based across all of our territories as increasingly, consumers are shopping online. The other dynamic that we are experiencing though is within our existing customer base, there are a number of people who would have traditionally shopped principally just for going out clothes with ASOS, and they may have bought -- they may be relatively infrequent shoppers. They might buy their Christmas outfit with ASOS and possibly their outfit that they're going to go wedding in the summer. And that dynamic there was definitely -- kind of muted our existing customer activity. And I guess, ultimately, has therefore slightly affected our churn rates. But obviously, we would hope and expect that -- in the event that the going-out business picks up again, we would expect that a significant number of those customers are not lost to the site, but they will come back when activity picks up again.

The next question here as well for Matt comes from Aneesha Sherman at Bernstein. Could you please share some color on the different drivers of gross margin and how much of that 90 bps in the period, each of them contributed, for example, between the category mix effect, funds rates, price investments, et cetera?

Yes. Of course, I can. So the returns rates don't really have a material impact on gross margin. So it's driven by 3 principal factors. The first of those is that category mix effect, and that is a good chunk of it because we're seeing that significant swing into casual. Though it is worth reminding everybody that typically, casual product is associated with lower returns rate. So from a profitability perspective, the impact is not significant. We've then -- the second driver in terms of order of magnitude is the freight costs. So inbound freight, as I'm sure everyone is familiar with, is -- has gone up significantly. And obviously, that ends up in our gross margin. So that is the driver. And then the third driver is the promotional investment that Nick and I both spoke about. But I guess I would see -- in terms of order of magnitude, I would see it in that order. And there is some buying efficiency that is playing into and helping us to manage that promotional investment as well.

Next question is probably for you Nick. So Anne at SocGen. How will the Lichfield warehouse be able to do GBP 1.2 billion of sales on half the Barnsley footprint? Could this be automation? Speed? Or fixtures?

Thank you for the question. So over the course of the last few years, we've increased our automation into our facilities. The Barnsley warehouse has about 4,000 people delivering probably the best part of GBP 1.7 billion. The Euro Hub warehouse, which has massively increased its efficiency again this year, will operate a similar output with 2,000 people. We've taken the learnings from the automation in Berlin, and we're putting that into Lichfield. So we're anticipating around GBP 1.2 billion of output from Lichfield with half to square footage to Barnsley. So therefore much more efficient site through the mechanization and automation we intend to deploy that. At peak, we think that will have around 2,000 new jobs for the U.K. So we're very excited about that particular project. And again, we'll be putting those learnings into our U.S. facility as well.

Great next question comes from Michelle at Berenberg. Can you talk a bit more about the investment into demand? What gave you the confidence to be more aggressive there? And how did you go about it? Did you focus on any particular countries? And was it more weighted into price promo or marketing activity?

Do you want me to do that, Nick?

Yes. Thank you, Michelle. Yes, Matt will pick that one up.

So I think let me tell -- I mean in terms of confidence, I think we were conscious through the peak trading period that with consumers increasingly migrating online, we wanted to make sure that, particularly for those consumers that might not know ASOS, that they would bump into us in their purchase journey somewhere. And so that's been the driver of that investment. And I guess we had confidence because we knew if we could attract them to the platform, that we would ultimately be able to meet their product expectations and their delivery needs. So that's what gave us the confidence. In terms of the balance of the investment, it's more weighted towards marketing investment than it is price or promo, but there has been investment in both price and promo; price in Europe, as I mentioned; and then promo has been broad-based wherever we've seen opportunity. In terms of the territory split, we have invested across geographies, but we've -- in terms of -- it's a return-driven exercise at the end of the day. Therefore, you would find that a chunk of that investment probably would disproportionately go into the U.K. given the kind of better returns on offer, but it is broad-based. But again, we -- as we built stock in the U.S., for example, we wouldn't have invested as much in the U.S. in the initial part of the period as we kind of built that stock profile. So hopefully, that answers the question.

Yes. In summary, Michelle, it's across product, price and promotion. We anticipate the work we put in place will increase our competitiveness going into the second half, which will be really important for a consumer that might end up with more economic challenges.

The next question we've got comes from Emily at Redburn. Please could you quantify the returns rate improvement year-on-year? And how that compared to the first lockdown?

Yes, I'll give that one to Matt, Emily, and thank you.

Emily, so it would have been in the high single digits again. Not quite as pronounced as the first lockdown, but certainly fairly significant. And obviously, within the period, more pronounced in the latter part of the period and less so at the start where restrictions weren't as widespread.

The next question we've got comes from David Holmes at Bank of America. Could you give a little more detail on the progress made by ASOS' flexible fulfillment? Any more detail on exactly how this is working?

Yes. You remember, David, that our first journey was to fulfill orders from our Barnsley warehouse to U.S. customers. We talked to you, in October, around 5 brands that were being shipped direct to consumers in the U.S. That's now 20. 20 brands, and we're making great progress on that. And we're still anticipating the second part of that, which is connecting third-party brands to our platform to drop ship on our behalf, and we're making good progress on that, and we'll update you during the course of the year how that's going.

Question now from Liv Townsend at UBS. Actually, we've got 2 from her. Can you give us some idea on how the other KPIs trended throughout P1, such as average items per order and the average selling price? Then a question on what are the cost implications of using flexible fulfillment to ship products in the U.K. to the U.S.?

Sure. I think they're both for you, Matt, so do you want to pick that one, yes.

Yes. So just in terms of the flexible fulfillment, speaking about it. So the cost implications clearly are that there is an additional shipping costs associated with the parcels. But in general, there will be a duty offset. So we do -- we think about it in terms of business rules, in terms of the efficiencies of shipping the specific product. And therefore, we build it into our margin expectations. So we kind of think about it like that. But overall, obviously, it's a demand driver, and we kind of think about it in the context of that, but making sure that we do it profitably. In terms of -- remind me what the second question was, Alison, again, if you wouldn't mind?

How are the other KPIs trended through P1, average items in ASP?

Thank you. So in terms of -- I mean ASP continues to be an overall drag because of generally the lower ASP of casual product versus going out products and particularly, obviously, the event-led party season. So ASP continues to be a drag, very much like you would have seen in H2 last year. And similarly, though, we are seeing a kind of uplift in average units per basket. So I guess the trends of H2 last year will give you a fairly good indication of what the trends have been to this point through P1. And obviously, we'll update in more detail at H1.

Question from Simon Owen at Credit Suisse. How confident are you in shifting the offer into or out of event-led categories through this summer, especially with ASOS design?

Let me have a go at that. The -- one of the effects of COVID is actually rebalancing our customers and rebalancing the shift towards more casualwear. So actually, that's been extremely helpful. Now clearly, during -- ASOS is famous for going-out gear. It's been a significant part of our mix. Now clearly, over the last 4 months, we've not been able to serve our customers with going-out gear that they want because the occasions and the reasons for them to wear it have not been there. So actually, the COVID tailwind has substantially helped rebalance our customers towards categories where historically we've not been as strong as we have in the past. So that's been extremely helpful. I'm expecting on the -- during the next coming months, that this greater product offer, this greater customer resiliency it will give us will be helpful. And then when consumers are allowed to do the things that we want them to do, we all want to do, then our going-out gear will be there waiting for them. So it's very helpful in terms of rebalancing our product mix and therefore, resilience. And of course, the casualwear elements, Face + Body, activewear, all have a much lower returns rate as we've demonstrated this morning.

Question coming now from Mike Benedict at Berenberg. Is the U.S. assortment in terms of product broadly back to the steady-state? Or are there more improvements that we're targeting to come in terms of product choice?

We've worked hard on rebalancing the stock. And the product offer is building nicely in the U.S., but there's more things that we are driving within the U.S. for the U.S. customer.

Next question coming from Simon Bowler at Numis. How significant do you expect warehouse inefficiencies to be in the outer years from the Lichfield ramp up and U.S. automation?

So I mean it's probably too early to give specific numbers. But actually, you'll have 2 -- I guess, 2 countervailing trends. So Lichfield, because it will initially not be automated, will represent a drag on the P&L. And I guess, to some extent, the Euro Hub might give you a proxy for what that might look like. U.S. automation, clearly, will generate an efficiency in the P&L. I think it's probably one for later in the year in terms of guiding to the specifics because that will be something that we'll be talking about into F '22 and beyond.

And while we talking about Lichfield, Simon. The Lichfield facility is anticipated to serve U.K. customers and Rest of World customers. That's now with, hopefully, the Lichfield site.

Question now on Brexit from Greg Lawless. With the Brexit cost of GBP 15 million, how much of that do you think you can mitigate the direct to Euro Hub rather than into the U.K. and exporting products to Berlin?

So let me have a go with that first, Greg, and then Matt will add some further color if necessary. We anticipated a no-deal Brexit. And over the last 2 years, we've worked extremely hard on restructuring our supply chain. Euro Hub is a big strategic advantage because the Euro Hub will serve all our European customers. So restructuring our supply chain means product going direct to the European Union through our Berlin warehouse and staying within the European Union for serving our customers. There's no impact in our customers on the back of it, with no -- there's no increase in costs arising from it, which will give us a strategic advantage, and effectively leveraging the technology where each European customer has their own specific European language site and service by the European fulfillment center. So the work and the planning and the investments we've made over the last 2 years have actually mitigated any potential risk that Brexit would have given us. Matt, I don't know whether you want to add any more dynamics on that?

Well, I mean, just in terms of variability to mitigate the specific tariff costs, there will be opportunities to do so. I don't think it will go down to 0, but I don't think it will remain where it is either. I think we'll find ways working with our suppliers to reduce the overall exposure.

Next question comes from [ Rocco Aarti ]. With the significant growth in the U.K. coming through, could you talk about penetration levels in the U.K. and saturation of 20-somethings? What room for growth is there from category expansion and more importantly, stretching the 20-something target group to younger and older customers?

Sorry, Alison. Would you just go through that one again? I was just making note of all the points Rocco was asking. Just...

Sure. So great growth in the U.K. How we're seeing penetration levels in the U.K. and saturation in our 20-something target? Is there room for growth in terms of category expansion? More importantly, is there room for stretching the 20-something target groups to younger and older customers?

Okay. So yes, we see plenty of category expansion for us in U.K. and Rest of World. And actually, as I was saying earlier, where ASOS is potentially being extremely strong in going-out gear. Clearly going-out gear has not been part of the growth during the last 4 months. So we're seeing a much greater category expansion in our casualwear offer, and that's what's driven the performance over the last 4 months, particularly in the U.K. We are laser-focused on 20-somethings, and we're laser-focused on the fashion aspect for 20-somethings funding, and we're looking to grow further in the European territory, U.S. territory, alongside the success that we see within the U.K. In terms of going to a different demographic, based or focused on 20-somethings means plus or minus 10 years. And then outside of that, the experience is more of an attitude state of mind rather than a demographic market. So we see plenty of category expansion, particularly in sportswear, particularly in Face + Body, and COVID has helped us build a new customer base around casualwear, too. I hope that answers your question, Rocco.

Next question probably for Matt coming from David Holmes at Bank of America. Previously, you said you'd generate cash in FY '21, excluding the working capital swing. Given the improved performance, do you now expect to generate cash including these working capital movements in FY '21.

So I mean we've obviously also increased our CapEx guidance. So I would say, at least at this stage in the year, and it's still very early in the year in terms of the specifics of stop-builds in H2, et cetera, I would be leaving our guidance broadly unchanged.

Next question comes again from Simon Bowler at Numis. Do you think you're acquiring a different type of customer in terms of age, demographic, gender? Or are these very similar to customers just shopping for different products?

No, we're seeing -- particularly with Collusion, which is sub-20 targeted brand, we see excellent growth in the younger customers, which is absolutely our sweet spot. And it goes without saying, the younger customers are totally pivoted towards ASOS and resonated with the brands that we are offering them. So -- but we've also seen some new customers a slightly older demographic, but the highest concentration has been on the younger end.

Rebecca McClellan at Santander has asked whether we can give some commentary on U.K. P1 trends between when we're in a lockdown and when the country wasn't in lockdown.

Matt, do you want to pick that up?

So yes, I mean the -- we've continued to see, through the whole period, a higher proportion of casualwear. But if you were kind of looking at our weekly sales performance, you can see when lockdowns kick in, you can see casualwear kick up almost immediately. So our performance is highly correlated with where we are in the cycle of lockdown versus non-lockdown. And as Nick mentioned earlier, on overall kind of lockdown categories represented just over 10% more of a mix this year than last year.

Question now from Liv Townsend at UBS. Do you have a sight on branded product availability for the rest of the half? Should we expect any challenges? Or has the risk of bottlenecks reduced?

No. We've been extremely successful at securing branded product intake. And you know what, the success of our trading means we are a key priority [ custom ] In many of our big brands. So we're not anticipating the bottlenecks that we feared back in October.

Following up with...

Sorry, Alison. It is fair to say that there were certain things we could have sold more if we had more. Sorry, Alison.

Indeed.

Question now from Aneesha of Bernstein. Can you comment on the performance of ASU related to Nick's points about customer targeting versus brand help you target a younger customer than your core customer?

Aneesha, as you launched in October, it's been extremely successful. Again, that's another bench of brand targeted at the younger customer. There's an element of going-out gear in there, but there's also a bigger range of short lead time, fast response and definitely targeted to the younger demographic, and that launch has been extremely successful.

Question now from Georgina at JPMorgan. How you do manage the stock between your 2 U.K. sites, given they're not connected? For example, you split men's-women's. Do you expect inefficiencies from orders collated across more than 1 warehouse?

Matt, do you want to take that up?

Yes, I can, Nick. So I'm not going to comment in detail because I think I'd be here for the next half an hour talking about how we're going to manage the stock profile. But with flexible fulfillment, what we'll probably do is we will carry a similar enough range that we would expect very few orders to be fulfilled -- kind of split fulfillment. There may be the odd one. But in general, we will try and manage it like that. So rather than having split warehouses in terms of different products and different warehouses, we will look to build stock depths in both warehouses, which is probably the most efficient way. And we may, therefore, do territory splits as opposed to anything else. But it will depend on exactly where we are in the product mix evolution at the time. And therefore, we'll keep you guys updated as we go.

Another question now from [ Rocco Aarti ]. Is there any update on Australia, where your main competitor, GFG seems to be doing -- seems to have a 1.5x advantage? Are you challenging that by more marketing and price investment? Or do you have any plans to increase the proposition by our local hub?

Matt, do you want to talk about Australia?

Yes. So I think -- I mean in terms of Australia, I think there are a number of -- at the moment, particularly with supply lines and specifically commercial, commercial airlines not traveling, we are definitely at more of a proposition disadvantaged than we would normally be. So our proposition is extended by a couple of days. So I think in that sense, we recognize there's a disadvantage. However, the performance of Australia continues to be exceptionally strong. So we are looking at ways to amplify our Australian performance, but there were no current plans for a local hub. Australian consumers are very used to the lead times. And in more normal times, our express services is reasonably competitive against local competition at the moment. It's less so, but obviously, we would expect that to normalize as things -- as and when COVID starts to receive somewhat.

Continuing on, on Localized Warehouses. Another question from Michelle at Berenberg in terms of how we're thinking about our European DC in the context of Brexit. Assuming many of the U.K. brands on ASOS don't have a European DC, could they become more reliant on ASOS for distribution in Europe? Are you thinking about this as a source of advantage?

Thank you, Michelle. Yes. As I said earlier, the work and the investment we made in localized website and a local fulfillment center in terms of Berlin gives us substantial advantage in serving our European customers. And without all of that, the potential Brexit tariff would have been much higher. So we're very pleased with the investments we've made over the last 2 years and the strategic advantage that gives us. It is possible that certain brands would not be able to replicate that advantage in what we've built, and they just choose to use as their supply partner and restructure the supply chain accordingly. So it's in our thinking, and it's definitely a possibility.

Just got time for a couple more before we wrap up. Simon Irwin at Credit Suisse. What are air freight costs doing? Are they still a headwind this year?

Matt, do you want to take that up?

Yes. So they are still a headwind. Freight costs have come down slightly from the peak, but they're still very high. And it probably is worth also commenting on sea freight costs are, I think, is high as they've ever been. So freight is most definitely currently a headwind. Again, we would expect that to start to normalize as travel activity picks up. But we would probably expect it to lag somewhat -- the pickup in underlying consumer demand because it will obviously take a while for capacity to come on stream, sorry.

Okay. Last 2 now. Have -- a question from Jose at Caixa. Marketing expense has gone back to more than 4% of sales, again, given the investment we've made. And what's your view on how this should evolve in the future?

Matt, do you want to grab that?

Yes, of course. So again, we don't give specific numbers at P1, but we will obviously give it half year. But certainly, our marketing has been at the kind of top end of our normalized range, and we have chosen the opportunity to invest into it. In terms of what to expect going forward, I guess it will depend on the consumer opportunities that we see in front of us. I'm still broadly in the place I have been before, which is that I would expect, over time, our marketing expenses as a percent of sales potentially to tick up 10, 20 basis points over time. But you may see particular periods where it's higher or lower than that depending on the opportunities that present and the exact phasing of the activity that we're undertaking.

And then last one, sticking with the cost ratio theme. Anne Critchlow at SocGen. In the past, you've talked about a medium-term warehousing sales ratio target of 8% to 9%. How quickly do you think you can get there?

Matt, do you want to grab that?

I was wondering I know you're a big fan of talking about warehousing, Nick. So in terms of -- so again -- and I think you have to think about it in terms of individual warehouses because it will depend. Obviously, Euro Hub is getting towards maximal efficiency, Barnsley and Nick referenced the fact that we did more than 700,000 units in a day out of Barnsley, which is phenomenal, really. So -- but automation won't come onstream in the U.S. until 2024. And obviously, then we're kind of laying down capacity in Lichfield. So I would expect -- I think rather than thinking about the overall, I would think about it in terms of the specifics. But as you can see from all of the capacity we're deploying there, we've definitely quite a significant number of efficiency opportunities for us to take in the coming years.

All right. I think that's the last question. So thank you, everyone, for joining. I'll just reiterate what I said earlier. We're looking ahead with confidence in the long-term opportunity. You can see that evidence to the investment plans we're making. A multi-brand, multi-product platform, coupled with our unique ASOS brand and the developments we're making in the platform, and also enhancing the customer experience and our own competitiveness gives us -- puts us in a place where we're absolutely well positioned to capture what could be a real change in consumers' attitude towards shopping online. Thank you very much for dialing in. Thank you very much for your time. I hope you all have a good day. And if there are any further questions, obviously, Matt, Alison and I will be around to pick those up. Thanks so much for dialing in.