ASOS shares slump on wider losses as shoppers retrench spending

ASOS shares slumped after the fast fashion retailer reported wider interim losses as shoppers continued to tighten their belts amid the cost of living crisis, even though the company said it was confident of a return to profit in the second half.

The company posted a loss before tax of £291m, compared with a loss of £15.8m a year earlier. On an adjusted basis, losses were £87.4m in the six months to February against a profit of £14.8m. Revenue fell 10% to £1.84bn on a constant currency basis.

Shares in the firm were down almost 13% in morning London trade. ASOS started an overhaul of its business model last October which led to a £203.5m one-off charge.

ASOS, along with online rival Boohoo soared in popularity during the Covid pandemic on demand for their products surged during the Covid pandemic when high street rivals were closed.

However, supply chain issues, a return to more normal post-pandemic work patterns and the cost-of-living crisis have hit their business models.

The company had cash and undrawn facilities of £408.6m, but full-year free cash forecasts were for an outflow of around £100m, around the bottom end of previous guidance.

“We are improving our gross margin run rate in the face of significant headwinds, are starting to see the benefits of a repositioned stock profile, and are taking action to reduce the proportion of our sales which are not profitable," said chief executive José Antonio Ramos Calamonte.

"Initiatives are in place to drive a further £200m of benefit in the second half and I am very confident of our return to sustainable profit and cash generation in the second half of the year and beyond.”

ASOS forecast a "low double-digit" decline in second half sales but core earnings of £40-60m, reflecting its focus on profitable sales, assuming there was no improvement to the trading environment.

AJ Bell investment director Russ Mould said the results "are as ugly as sin".

"It's all very well having a turnaround plan, but at some stage you have to show results and it feels like ASOS should have been delivering the goods by now."

"The company implies the economic backdrop has been unfavourable which has hampered its progress. It's at times like these that consumers look for bargains which means ASOS's decision to cut back on markdowns is somewhat ill-timed. Yes, it is prioritising profits over volumes, but it also needs to be in tune with what the consumer wants."

"ASOS has suffered in the past from having too much inventory and too much discounting, which has essentially made the customer associate the brand with cheap products. If it takes away the discount carrot then customers are going to turn their nose up and shop elsewhere. ASOS has been the architect of its own mistakes and is now paying the price."

Reporting by Frank Prenesti for Sharecast.com