Asos new CEO vows to rebuild ‘inefficient’ model as fashion seller posts £32m loss
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The new CEO of Asos has said he will refresh the fashion marketplace’s commercial model after the online retailer swung to a loss.
In results for the year to 31 August 2022, Asos said gross margins had been impacted by a supply chain “inefficient in the face of supply chain disruption and macroeconomic challenges”.
After enjoying an £177m profit last year, Asos posted a £32m reported pre-tax loss this year after cash-strapped consumers dialled back spending and sent back more online orders.
Revenue in the UK increased seven per cent but “inflationary pressures on consumers increased markedly as the year progressed,” limiting customer purchases, the company said.
Total group sales rose by just one per cent to £3.93bn in the year while adjusted profits saw a collapse of 89 per cent to £22m.
While the company had delivered a “resilient” set of results despite “an incredibly challenge economic environment,” chief executive officer José Antonio Ramos Calamonte, Asos could “achieve far more”.
The retailer warned of a “decline in the apparel market” in the UK over the next 12 months but said it was still confident it could gain market share.
Trading at the start of the 2023 financial year had continued to be “volatile,” although September sales had seen a “slight improvement” compared to August, with party wear sales picking up.
In what Calamonte dubbed as a “clear change agenda” to rebuild the business over the next year, Asos had identified “a number of decisive, short-term operational measures to simplify the business.”
The London-listed company admitted it needed “to better leverage data” to engage customers, who have fallen out of love with Asos despite it revelling in an online shopping boom during the pandemic.
Asos warned it would book a loss in the first half of the new financial year as it would discount prices of apparel stock, anticipating it would only generate positive cashflow in the second half of the year.
The retailer said a stock write-off of £100m – £130m would increase flexibility within its logistics operations and cut down costs.
Calamonte, who has held the top job since June, told reporters that the brand was “considering all options” on how to clear an inventory backlog, including possibly selling apparel through brick-and-mortar outlets.
Although the retailer faces hot competition to lure bargain-hungry shoppers away from fast fashion rivals like Shein, Calamonte told reporters “we’re not obsessed with competing to be the cheapest in the market.”
Maintaining free returns for customers was “a critical part of our market position,” the retail chief told CityA.M, after rivals Boohoo and Zara have introduced small charges for shoppers returning online parcels.
In a bid to reduce a wave of customers returning orders, the fashion brand had been trying to ensure consistency with its apparel sizing to prevent customers returning clothes that do not fit.
It would also educate customers on “the consequences” of not returning orders promptly from a sustainability perspective, as the longer shoppers wait to send orders back the “less likely” it was the brand could sell it again.
In a scathing note, experts at Liberum said they felt the strategy “appeared under baked” and advised investors to sell their shares after “a concerning lack of detail” in a presentation to analysts.
Analysts at the investment bank were “not overly convinced it takes just 12 months to get your customer base off the discounting drug, especially in the current consumer environment.”
Shares in the London-listed firm were up 14 per cent in trading on Wednesday morning, although the retailer’s price has taken a hammering to the tune of 76 per cent over the year to date.
Over the weekend, the troubled retailer confirmed it was in the final stages of arranging a £350m credit facility with financial backers.
In a previous statement, Asos said the credit facility, which matures in July 2024, would “significantly” boost its financial flexibility against the “uncertain economic backdrop”.
The retailer insisted that it remains in a “strong liquidity position” and this is a prudent step in the current environment.
On Wednesday, Asos said it had agreed a renegotiation of core banking covenants, with cash and committed facilities of over £650m at year end, in a bid to “navigate the continued macroeconomic volatility.”