Fashion etail giant Asos has reported retail sales up 26% to £136.7m but has warned on margins as it increases investment.

UK sales rose 21% to £48.4m and international sales 29% to £88.3m in the two months to February 28.

Overseas sales now account for 65% of the total, up from 53% this time last year, and trading was strong in all territories except its Rest of World arm, which suffered adverse currency movements, particularly in Australia and Russia.  

Retail gross margin slipped 30 basis points in the two months.

The trading, although strong, represents a slow down compared to the six-month period to the same date. Retail sales surged 34% to £472.3m, with the UK up 32% and international up 35%, in the six months. Retail gross margin was up 60 basis points.

The retailer has ramped up its level of investment from an expected £55m to “at least” £68m this year as it ploughs money into warehousing in both the UK and Germany, and into IT.

Asos chief executive Nick Robertson, who last week picked up the Clarity Leader of the Year Award at the Oracle Retail Week Awards, said the investment will increase the retailer’s sales capacity to £2.5bn, more than £1bn higher than previous guidance.

This investment, along with Asos’s launch in China, will reduce EBIT margin for the year to August 31 to about 6.5%. Costs will be disproportionately felt in the first half.

“It has been an exceptionally busy period of activity at Asos, with continued growth and accelerated investment, as we continue to build the number one online fashion destination for 20-somethings globally,” said Robertson. “The group delivered strong sales and margin growth over the first six months of the year and we are now confident of achieving £1bn of sales in 2013/14. 

“We ended the period with 8.2 million active customers, a 36% increase year on year.”

Asos warns on margins as it ramps up investment in supply chain and IT