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ASOS sticks to full-year guidance despite profit plunge

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FILE PHOTO: A model walks on an in-house catwalk at the ASOS headquarters in London April 1, 2014. REUTERS/Suzanne Plunkett/File Photo
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By Sonya Dowsett

(Reuters) - British online fashion retailer ASOS reported an 87 percent drop in first-half pretax profit on Wednesday, hurt by poor trading in the run-up to Christmas and logistical hiccups as it entered the U.S. market.

Yet the company, whose affordable on-trend garments have made it a hit with young buyers and made it one of Britain's most successful online retailers, stuck to its guidance for sales, profit margins and capital expenditure for the full year.

Shares in the company, whose current offers feature one-shoulder mini dresses for 25 pounds and jumpsuits for 40.50 pounds, were boosted by the unchanged guidance and traded up 5 percent at 33.06 pounds by 0805 GMT.

The stock was still well below its 41.86 pounds level before a shock profit warning in mid December.

The company, which sells brands ranging from Abercromie and Fitch to Superdry as well as its own collections like its ASOS Design label, is investing heavily in its technology platforms and infrastructure such as warehouses and distribution centres.

"ASOS is capable of a lot more," said Chief Executive Officer Nick Beighton in a statement. "We have identified a number of things we can do better and are taking action accordingly."

ASOS's new U.S. warehouse has struggled to cope with demand, hitting sales there and adding to challenges in France and Germany. The United States accounts for around 12 percent of sales.

But staff levels have nearly doubled at its U.S. warehouse in Atlanta, ASOS said on Wednesday, and all U.S. orders were being fulfilled locally rather than through a British distribution centre, allowing the retailer to restore its service delivery promise.

"The corrective steps taken should provide reassurance," said JP Morgan Cazenove in a research note.

Profitability fell over the first half due to discounting but improved in the second quarter.

The company, which also sells homewares and beauty products, said ASOS Design had a more challenging season with retail sales up 5 percent year on year against 18 percent growth for third party brands.

Changing shopping habits and uncertainty over Britain's exit from the European Union have led to heavy promotional activity among retailers in Britain, which accounts for around a third of sales at ASOS.

Pretax profit for the six months through February came in at 4 million pounds ($5.2 million) on sales up 14 percent to 1.31 billion pounds. This was in line with analysts' expectations.

ASOS maintained its full-year guidance for 15 percent sales growth and a 2 percent profit margin at the level of earnings before interest and tax (EBIT).

($1 = 0.7652 pounds)

(Reporting by Sonya Dowsett in Madrid; Editing by Paul Day and David Holmes)