Asos is buying less stock and ramping up sales of its current items in the latest efforts to boost profit, as the struggling online retailer steams ahead with its turnaround plan – posting a £20m rise in earnings.
The fashion brand said it is on-track to deliver adjusted earnings before interest and taxes (EBIT) guidance of £40-60m in the second leg of the year, but revenues were down 14 per cent.
Its improvement plan boded well with investors – as the brand’s share price soared 15 per cent when markets opened this morning.
The London-listed company has been battling dwindling sales since a return to physical shopping post pandemic and supply issues fuelled by the Ukraine war – recently tapping shareholders for £75m to repair its balance sheet following a season of losses.
However, in efforts to improve business Asos said it is now in the process of turning “stock into cash,” which is “driving cash inflow” in the second half of the year.
Over the last two years the group said it had a build of clothes and other items – describing it as a “mismatch between our intake and sell-through” – this led to £130m of stock being written off in 2022.
To shift these goods, Asos said it will temporarily have more stock being cleared on promotion under its new commercial model.
“Under our new commercial model, when we don’t sell out in-season, we will clear stock faster. We will clear high fashion product after one season, while continuity product,” José Antonio Ramos Calamonte, Asos’s chief said.
“This ultimately leads to a better realised price as discounting closer to the season requires shallower markdown.”
He added: “At present, 10 per cent of our stock is less than 4 weeks old, 55 per cent of stock is less than 26 weeks old and 86 per cent of stock is less than 52 weeks old. Most of the stock we currently hold has therefore only been through one season and less than 25 per cent was carried forward from FY22.”
“Asos shares are finding some much needed momentum this morning after showing its turnaround plan is making progress after reporting positive earnings in the latest quarter,” Josh Warner, Markets Analyst at City Index:
“That is largely down to its cost-cutting measures and efforts to improve underperforming brands, which helped push up the amount of profit it makes on each order by some 30 per cent considering sales remain under pressure.”
He added: “That is helping drive the message home that ASOS is no longer growing at any cost and putting profits first and, as a result, shares are on course to book their biggest gain in almost five months today.”