ASOS update shows lower sales but a return to profit as H2 continues

By

Sandra Halliday

Published
Jun 15, 2023

It’s only a month since ASOS released its first-half FY23 results but with the news swirling round the company at present it’s clearly aiming to keep the world informed of its progress and onThursday it issued a trading update.

It said that in the three months to the end of May (P3 as it refers to the period), total group revenue fell 11% as expected to £858.9 million. UK total sales were down 14% at £370.3 million with total sales to the EU down 4% at £285.3 million, although they were also down a wider 7% on a constancy currency (CCY) basis. 

Sales to the US, fell 15% to £121.2 million with a CCY 20% drop, while sales to the rest of the world fell 13%, and 14% CCY, to £83.9 million.

But the company highlighted its return to profitability with P3 adjusted earnings before interest and tax (EBIT) up more than £20 million year-on-year and the EBIT margin up 250bps. It’s on track to deliver on its adjusted EBIT guidance of £40 million-£60 million in the second half.

This has reflected “deliberate actions on capital allocation to improve profitability” including around £200 million profit optimisation and cost savings realised year-to-date.

It added that profit per order is up over 30% so far this year, driven by “actions taken to improve profitability of underperforming brands and geographies”.

And the adjusted gross margin is up 350bps supported by “freight and improvements in realised selling value and sourcing”.

Active customers are down by 0.8 million from the 24.9 million reported at the end of the first half, “reflecting a continued focus on improving the profitability of sales over the pursuit of growth at any cost.”

Meanwhile, inventory is down by around 15% on FY22, with 86% of stock less than 12 months old. 

That inventory improvement is crucial. The company said that the net debt of £153 million reported in its FY22 results announcement (down from a net cash position of £200 million in FY21 and £408 million in FY20) “was predominantly driven by the purchase of too much stock”.

That was worsened last year by the e-tail decline, the recovery of physical stores and issues linked to Russia’s invasion of Ukraine.

It closed FY22 with £1.1 billion of inventory, twice the size of its stock balance in FY20. But it has been right-sizing its stock position and getting its finances back on track. It said that now, its recovery plan means “we turn the stock we have into cash and buy less stock; we improve profit per order; [and] with a profitable base established, we grow again by investing into customer acquisition and lifetime value”.

The company added that it will retain its focus on profitable sales and its commitment to reducing inventory for the remainder of FY23. 

Profit expectations for H2 and the full year are unchanged from guidance issued with its first-half results recently. 

And CEO José Antonio Ramos Calamonte said: “We continue to focus on making ASOS the best possible destination for our fashion-loving customers. At the same time, we are delivering on our plan to turn the business around: to right-size our stock; to generate cash; to reduce our net debt; and to structurally improve our profitability. 

“I am confident in the direction we are going, we have restored profitability in the period and made good progress in clearing through our inventory to generate cash. We retain ample balance sheet flexibility and reiterate our expectations for improved profitability, cash generation and reduction in net debt in H2 FY23 and beyond.”