ASOS Highlights Turnaround Progress Amid Sales Challenges

ASOS recently released its annual results, emphasizing the positive strides it’s making while acknowledging some challenging figures. Despite these hurdles, ASOS remains optimistic about its future.

Starting with the headline numbers, the company reported an adjusted group revenue of £3.538 billion for the year ending in September, marking an 11% decrease in constant currency basis from the previous year’s £3.936 billion.

While the adjusted gross margin improved to 44.2% from 43.6%, adjusted EBITDA declined to £124.5 million from £183.9 million, and adjusted EBIT showed a loss of £29 million compared to the prior year’s profit of £44.1 million. The adjusted loss before tax stood at £70.3 million, a significant shift from the £22 million profit in the previous year.

On a reported basis, the loss before tax amounted to £296.7 million, considerably wider than the previous year’s loss of £31.9 million.

Notably, these figures align with the previously issued guidance. Moreover, ASOS reported that adjusted EBIT in the second half experienced remarkable growth, exceeding 100%. The company also witnessed a substantial increase in free cash flow, reflecting notable improvements in core profitability and robust inventory management.

Operational Progress

ASOS continued to execute its «Driving Change» strategy during this period, including reducing stock levels by 30%, increasing profit per order by over 30%, and refreshing the leadership team. This restructuring injected new energy and expertise into the organization.

The company also celebrated «significant operational progress.» Notably, approximately 84% of around £1.1 billion worth of old stock that had been carried forward was successfully cleared during the year. Additionally, stock operating under the new commercial model in the second half demonstrated a stronger sell-through rate. The «Test & React» pilot for high-fashion products ramped up, and the «Partner Fulfils» program was expanded to 33 brands across six markets. ASOS also implemented technology to accelerate the rollout and provide ASOS Fulfilment Services for DTC (direct-to-consumer) products.

Customer Metrics

During the year, active customer numbers experienced a 9% decline, amounting to 23.3 million. However, the average basket value increased by 7% to £40.33. On a constant currency basis, the average value showed a 5% rise to £39.65. Average order frequency witnessed a 6% decrease, and the total number of shipped orders dropped by 15%. Additionally, total visits to the platform decreased by 8%, and conversion rates shifted from 3.4% to 3.1%.

ASOS highlighted that some of these declines were a result of strategic actions. The company focused on remedial actions to enhance profitability, particularly among loss-making customer segments. These actions led to higher levels of customer churn. Furthermore, Premier customers decreased by 11%, primarily due to increases in subscription prices and the introduction or escalation of minimum order thresholds for free delivery.

Market Performance

ASOS reported that total sales in the UK experienced a 12% decline and a 13% decrease on a like-for-like basis. In the EU, total sales dropped by 1% or 4% on a constant currency basis. In the US, there was a 6% decline in total sales, with a 14% decline on a constant currency basis, accompanied by a 5% decrease in visits. In the rest of the world, excluding Russia, total sales fell by 15%, or 16% in constant currency.

Looking Ahead

For the current financial year, ASOS is focusing on a «Back to Fashion» shift, leveraging its strengths to offer the best and most relevant products, alongside an enhanced customer experience centered around fashion and excitement. This transformation is supported by strategic investments in marketing while upholding operational excellence and disciplined capital allocation.

ASOS anticipates that the final stock cleansing over the current financial year may impact sales growth and profitability. However, the company expects to conclude the year with most stock operating under the new commercial model, inventory restored to pre-COVID levels, Test & React scaled to over 10% of its own brand, and a remarkable 200% growth in Partner Fulfils.

The company forecasts a sales decline ranging from 5% to 15% in the current financial year, with positive adjusted EBITDA and substantial cash generation driven by stock sell-through, ultimately reducing net debt. Looking ahead to the following financial year, ASOS anticipates a return to growth, with the EBITDA margin reaching levels similar to the pre-COVID period.

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