ASOS swings to loss but growth plan sends share price upwards
ASOS on Wednesday unveiled what it called a “good performance” for the year to the end of August, despite the weakening consumer environment. But it was a far-from-stellar performance and the company said it has identified its issues and has a plan to deal with them.
On the plus side, the results matched expectations and its shares rose after falling earlier this week. It saw active customer growth and further increases in Premier customers and order frequency (+5%). The strong Topshop performance (+105%) boosted revenue in the UK, US and EU, driving margin expansion and helping to justify those acquisitions.
But group revenues were up only 1% at £3.936 billion (+2% constant currency, or +4 excluding Russia).
The gross margin dropped to 43.6% from 45.4% and it made an operating loss of £9.8 million, down from a profit of £190.1 million. Adjusted pre-tax profit fell 98% to £22 million, and the reported loss was £31.9 million, down from profit of £177.1 million a year earlier.
H2 was “more challenging than expected” as inflation meant weakening consumer confidence and it also saw an increase in return rates.
In the UK it saw revenue growth of 7% to £1.762 billion, despite a slowdown as inflation hit home. It continued to grow its market share. Demand shifted to occasionwear, supporting higher selling prices. But basket values and average units per basket declined.
In the US, revenue rose 10% to £531.4 million, supported by Topshop and Topman, the expansion of wholesale and a “more locally relevant offer”.
European revenue rose 2% to £1.17 billion as inflation made an impact. Customers in Germany appeared most exposed to this, while consumer demand in France was hurt by a shift back to physical stores. It also said Northern European territories increasingly used BNPL payment methods.
Rest of World sales declined 9% (excluding Russia) to £472.3 million. But it saw improved performance in H2 in Australia and Saudi Arabia. With Russia added into the mix, RoW revenue fell 20%.
Trading has stayed volatile into the start of FY23, but September showed “a slight improvement” month on month. It means it’s “very difficult to predict consumer demand patterns for the upcoming year”.
The company said its new CEO is now in place “with a diagnostic of the issues ASOS faces”. It didn’t pull any punches here and said problems include “international operations that have lagged expectations on ROIC, particularly in the US; a need to review and renew the customer acquisition and commercial model; a supply chain operation which has become inefficient; the need to better leverage data and digital improvements to successfully engage the customer; and the need to strengthen the leadership team and refresh the company culture”.
So big challenges — and changes — ahead. ASOS said that over the next 12 months, it will deliver on key actions.
It’s reviewing its operating model, marketing investment, capital and resource allocation and its deployment across geographies, customer acquisition channels and digital and data capabilities.
ASOS expects a non-cash stock write-off of £100m-£130m in FY23, “which will increase flexibility within the logistics operations and reduce costs”.
But it seems to have the cash to see the tough times through and said it has agreed additional financial flexibility through the renegotiation of core banking covenants, with cash and committed facilities of over £650 million at year end.
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Still-new CEO José Antonio Ramos Calamonte said: “ASOS is a strong business with a compelling brand, customer offer and fashion credibility.
“I have set out a clear change agenda to strengthen ASOS over the next 12 months. This includes a number of decisive, short-term operational measures to simplify the business, alongside steps to unlock longer-term sustainable growth by improving our speed to market, reinforcing our focus on fashion, strengthening our top team and leveraging data and digital developments to better engage customers.”
Internationally, the CEO said he sees “a significant need to improve the way we operate to unlock the opportunity of our global reach. In recent years, the quest for growth has resulted in ASOS becoming excessively capital intensive, too complex and overstretched globally, which has resulted in a lack of meaningful growth and scale in its key international markets of the US, France and Germany”.
However, it should soon see “a shorter buying cycle with enhanced speed to market that enables a more relevant and better curated customer offer; a more flexible approach to stock that utilises ASOS' Partner Fulfils capability to reduce stock held in our fulfilment centres and ensure more near-shore sourcing using a ‘Test and React’ model; [and] a differentiated approach to stock clearance, introducing more off-site routes to clear product earlier in its lifecycle which will, in turn, reduce markdown and increase the proportion of full-price sales”.
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