British online fashion retailer, ASOS, has recently announced its annual results for the year ending in September 2023. Despite a decrease in sales, the company remains hopeful about its turnaround progress. However, a closer examination of the numbers reveals various challenges that ASOS currently confronts.

In terms of revenue, ASOS reported adjusted group revenue of £3.538 billion, marking an 11% decrease compared to the previous year. Additionally, adjusted EBITDA decreased from £183.9 million to £124.5 million, and adjusted EBIT showed a loss of £29 million, a drastic change from the £44.1 million profit recorded in the previous period. The adjusted loss before tax amounted to £70.3 million, a significant difference from the £22 million profit achieved last year. On a reported basis, the loss before tax was even wider at £296.7 million, compared to a loss of £31.9 million previously.

Despite these figures, ASOS maintains that the results align with its previous guidance. The company highlights that adjusted EBIT in the second half of the year increased by over 100%. ASOS also reported a substantial improvement in free cash flow, which increased by over £125 million. The company attributes this improvement to enhanced profitability and stronger inventory management.

Throughout the year, ASOS has continued to implement its Driving Change strategy, which involves reducing stock levels by 30% and increasing profit per order by over 30%. The company has also revamped its balance sheet and refreshed its leadership team to bring in new energy and expertise. ASOS celebrates “significant operational progress,” such as clearing 84% of old stock worth approximately £1.1 billion. The company has also seen stronger sell-through for stock under its new commercial model in the second half of the year. ASOS has expanded its Partner Fulfils program, including 33 brands across six markets, and implemented technology to accelerate the rollout of ASOS Fulfilment Services.

However, ASOS has experienced a decline in active customer numbers, which dropped by 9% to 23.3 million. Nevertheless, the average basket value saw an increase of 7% to £40.33. The total number of shipped orders decreased by 15%, and total visits to the ASOS website fell by 8%. Conversion rates dropped from 3.4% to 3.1%. ASOS explains that these declines were a result of the deliberate efforts to reduce low-quality customers acquired during the pandemic and implement stricter marketing strategies in response to weaker demand.

ASOS’s sales performance varied across different markets. In the UK, total sales fell by 12%, while in the EU, there was a 1% decline. In the US, total sales decreased by 6%, and in the rest of the world excluding Russia, total sales fell by 15%.

Looking ahead, ASOS plans to prioritize a shift “Back to Fashion” in the current financial year. The company aims to leverage its strengths to offer the best and most relevant products while providing an exciting and seamless customer experience. ASOS intends to invest in marketing while maintaining its focus on operational excellence and disciplined capital allocation. However, ASOS anticipates that the stock clearance throughout the year will negatively impact sales growth and profitability. Nevertheless, the company expects to exit the year with most stock operating under the new commercial model and inventory levels restored to pre-Covid levels. ASOS also plans to scale its Test & React pilot for own-brand products and achieve 200% growth in Partner Fulfils.

For FY24, ASOS forecasts a sales decline of 5% to 15%, accompanied by positive adjusted EBITDA and significant cash generation driven by stock sell-through. The company aims to continue reducing its net debt. In FY25, ASOS anticipates a return to growth with the EBITDA margin reaching pre-Covid levels.

Overall, ASOS acknowledges the challenges it faces but remains optimistic about its progress and future prospects. The company plans to build on its successes and continue driving positive change in the fashion retail industry.

Useful links:
1. ASOS Annual Reports and Presentations
2. ASOS Foundation – Aviva Community Fund