Shares in Asos rose by a third today after the fashion retailer announced a bumper share sale in a bid to shore up its finances during the coronavirus crisis.
Asos unveiled plans for a placing of up to 18.8 per cent of issued share capital to protect against a “prolonged downturn” caused by the pandemic.
The online fashion store, which has a market capitalisation of roughly £1.3bn, is hoping to raise more than £200m from the sale, Bloomberg reported, citing people with knowledge of the matter.
Asos also said it was finalising discussions to secure a 12-month extension to its debt facility of between £60m and £80m.
The retailer has continued trading since the Covid-19 outbreak but warned it had suffered a significant downturn in demand, with sales dropping as much as 25 per cent in the last three weeks of trading.
The company said it had taken steps to reduce capital expenditure and discretionary spending and had made use of government support such as payment deferral and job retention schemes.
It said stress testing of different scenarios indicated it had sufficient liquidity under its existing £350m debt facility.
It came as Asos reported a 21 per cent rise in sales to £1.6bn for the six months to the end of February.
The firm also posted a record pre-tax profit of £30.1m in the first half, which it said was a result of strong trading and cost cutting.
“The Asos business model provides us with significant resilience and we are encouraged to have seen, across our markets, that where consumers are in lockdown, Asos continues to be an important part of their lives,” said chief executive Nick Beighton.
“The Covid-19 crisis is clearly going to continue to be tough for everyone and the short-term outlook remains highly uncertain, but the measures we have taken ensure we are able to be clearly focussed on making sure that Asos emerges as a stronger and better business.”
The online retailer has made a string of board appointments and revamped its social media strategy in a bid to turn around its fortunates following a huge fall in profit last year.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said coronavirus was a “potential spanner in the works” for Asos.
“Sales have apparently held up well in the first half of the financial year, but if the group’s supply chains were to struggle, or customers decide to stop spending on new clothes — which isn’t impossible with millions of us stuck at home — Asos’ financial situation could start to look lacklustre quite quickly,” she said.
“Issuing new shares would offer a layer of protection by bolstering the balance sheet. Of course that’s providing investors are prepared to stump up the cash.”
Asos’ share placing follows similar moves by WH Smith and Hays as companies look to bolster the balance sheet during the economic downturn.