Are ASOS's Turnaround Plans Becoming Unstitched?

Having aimed to improve inventory management, reduce costs and "reinforce" its culture, external factors like bad weather are now raining on ASOS's fashion parade

Alliance News 26 September, 2023 | 11:42AM
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ASOS PLC said Tuesday it expects second-half profit to be at the lower end of expectations after a tough summer for sales, though the fast fashion firm explained it managed to reduce a bloated inventory during its financial year.

Shares in the company were 2.9% lower at 375.51p each in London on Tuesday morning.

ASOS said that, for the period June 1 to September 3, the final stretch of its financial year which it labels "P4", group revenue declined 12% annually. Adjusted like-for-like revenue was 15% lower on-year, an outcome ASOS said was "in line with guidance".

The firm reported a "stronger start" to the P4 period, before its performance weakened in July and August on a "deterioration in the UK clothing market", driven by wet weather.

For the full-year, ASOS now expects to report total group revenue fell 10%. Despite a declining sales in its P4 period, it still expects that stretch of its financial year to be profitable.

For the second half alone, meanwhile, it said its adjusted earnings before interest and tax more than doubled. It put this down to "material improvements to core profitability and strong inventory management".

It expects its second half earnings before tax and interest (EBIT) at the bottom end of its guided £40 million and £60 million range, however. Its adjusted gross margin expanded by 150 basis points in the second half, shy of its 200 basis point growth prediction.

Inventory fell 30% during the financial year, though Asos added it had to turn to "higher levels of discounting in the short-term" in order to achieve that.

Chief Executive Jose Calamonte said:

"ASOS has delivered on the driving change agenda and as a consequence is a leaner and more resilient business twelve months after its launch," he said.

"We have reduced our stock balance by 30%, significantly improved the core profitability of the business and generated cash against a very challenging market backdrop. We continue to focus on bringing the best fashion and the most engaging proposition to our customers as we make progress on our journey to sustainably profitable and cash generative growth."

The company announces full-year results on October 25.

ASOS, which shone throughout the pandemic, has struggled since as the online sway in retail abated when lockdown measures eased. The firm has attempted to boost its fortunes recently.

Back in October 2022, Asos announced a turnaround plan. It said it would look to improve inventory management, reduce its costs and "reinforce" its leadership team and culture. The plan was one of Calamonte's first acts as chief executive.

By Eric Cunha, Alliance News news editor 

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