ASOS, the popular online fashion retailer, recently announced a loss for the year ending in August 2022. Despite this setback, the company’s growth plan has managed to boost its share price. While ASOS acknowledges that its performance was not exceptional, it is confident in its ability to address the issues it faces.

The results were in line with expectations and led to a significant increase in the company’s shares after a previous decrease earlier in the week. ASOS saw growth in its active customer base, as well as an increase in Premier customers and order frequency. Additionally, the strong performance of Topshop contributed to revenue growth in the UK, US, and EU.

However, group revenues for ASOS only increased by 1% to £3.936 billion, or 2% in constant currency terms. Excluding Russia, the increase was 4%. The company’s gross margin declined from 45.4% to 43.6%, and it reported an operating loss of £9.8 million compared to a profit of £190.1 million in the previous year. Adjusted pre-tax profit fell by a significant 98% to £22 million, while the reported loss was £31.9 million.

ASOS attributed the difficulties in the second half of the year to inflation, which affected consumer confidence, and an increase in return rates. Despite these challenges, the company experienced revenue growth in the UK, with a 7% increase to £1.762 billion. ASOS continued to expand its market share, with a shift in demand towards occasionwear resulting in higher selling prices. However, basket values and average units per basket declined.

In the US, revenue rose by 10% to £531.4 million, driven by the performance of Topshop and Topman, as well as an expansion of wholesale and a more locally relevant product offering. European revenue increased by 2% to £1.17 billion, with Germany being the most affected by inflation and France experiencing an impact on consumer demand due to a return to physical stores. BNPL (Buy Now, Pay Later) payment methods were increasingly used in Northern European territories.

In the Rest of World segment (excluding Russia), sales declined by 9% to £472.3 million. However, there was an improvement in performance in Australia and Saudi Arabia in the second half of the year. Including Russia, the Rest of World revenue fell by 20%.

ASOS stated that trading has remained volatile at the start of FY23 but saw a slight improvement in September. The company’s new CEO, José Antonio Ramos Calamonte, has identified the challenges ASOS faces, including underperforming international operations, the need to review and renew its customer acquisition and commercial model, an inefficient supply chain operation, the need to leverage data and digital improvements to engage customers effectively, and the importance of strengthening the leadership team and refreshing the company culture.

To overcome these challenges, ASOS plans to review its operating model, marketing investment, capital and resource allocation, as well as its deployment across geographies, customer acquisition channels, and digital and data capabilities. The company expects a non-cash stock write-off of £100m-£130m in FY23 to increase flexibility within its logistics operations and reduce costs.

Despite the current difficulties, ASOS stated that it has enough cash to navigate the tough times and has negotiated additional financial flexibility through the renegotiation of core banking covenants. At the end of the year, ASOS had cash and committed facilities of over £650 million.

CEO José Antonio Ramos Calamonte expressed confidence in ASOS’ ability to strengthen the business. He outlined a clear change agenda for the next 12 months, which includes operational measures to simplify the business and steps to unlock long-term sustainable growth. ASOS plans to improve its speed to market, focus on fashion, strengthen its top team, and leverage data and digital developments to engage customers more effectively.

The CEO also acknowledged the need for improvement in ASOS’ international operations. He highlighted the company’s excessive capital intensity, complexity, and global reach as factors that have hindered meaningful growth and scale in key international markets. ASOS aims to shorten its buying cycle, utilize its Partner Fulfils capability to reduce stock in fulfillment centers, and adopt a differentiated approach to stock clearance. These changes are expected to reduce markdowns and increase the proportion of full-price sales.

Useful links:
1. ASOS posts loss but eyes expansion and growth
2. ASOS profit plummets to £22m as sales growth slows