Asos upbeat about turnaround despite £380m loss

Asos has forecast improved profitability next year after writing off a further £100 million in old, unwanted stock and cut costs as part of its turnaround plan.
The online fashion retailer said it expected margin improvement to drive 60 per cent growth in earnings before interest, taxes, depreciation and amortisation (ebitda) to between £130 million and £150 million in the new financial year.
The London-listed company reported ebitda — its preferred measure of profitability — of £80.1 million in the year to the beginning of September, down from £124.5 million the year before.
This was primarily a result of “lower revenue and increased discounting to clear aged stock”, part of its strategy to boost profitability, it said.
Losses before tax widened to £379.3 million during the year, compared to a loss of £296.7 million last year, owing to the write-off in old stock and a £141.8 million writedown on the closure of its Lichfield warehouse, announced last November.
In October 2022, at the beginning of Asos’s turnaround plan, its stock levels had more than doubled to over £1 billion, largely owing to Covid-related disruption and poor commercial practices.
Over the past two years, the retailer for “twentysomething shoppers” has reduced stock levels by about 50 per cent to £520 million and about 80 per cent of its current fashion stockholding is now in product that has been on the website for less than six months.
Asos had already written off more than £100 million of stock in 2022. A large proportion is understood to have been sold on its sample sale website.
The retailer said that as a result of stock reduction its sales increased by 24 per cent year-on-year over the past three months. Average basket value over the full year is up 2 per cent to £41.07.
The focus on profitability has weighed on overall revenue, however. Group full-year revenue declined by 16 per cent on a like-for-like basis to £2.9 billion, in line with guidance given in its September trading update.
José Antonio Ramos Calamonte, chief executive, said: “The decisive actions taken over Phase 1 of our turnaround means we are confident in achieving significant profit improvements in [financial year 2025] regardless of revenue levels.
“We have already seen the green shoots of the performance of our new stock in recent months, which gives us confidence that our new commercial model is delivering the right product at the right time.”
Asos bosses have been under pressure to get the business firing on all cylinders again.
The retailer, in which Mike Ashley’s Frasers Group has a 21 per cent stake, enjoyed a sales surge during the pandemic amid a shift to online shopping. Since then, however, demand has slowed as shoppers return to the high street and it struggles with increased competition from the likes of Shein, the Chinese-founded fast-fashion group.
A former stock market darling, Asos was briefly valued at more than £6 billion in 2018 — more than Marks & Spencer or Next. The shares have since fallen by more than 95 per cent, while shares in Next have risen by 108 per cent over the same period.
Calamonte has taken several actions to drive profitability, including reducing stock levels, having stricter criteria on returns and more disciplined marketing.
In September Asos sold a 75 per cent stake in Topshop to a group controlled by the billionaire Anders Povlsen, Asos’s biggest shareholder, and announced a £250 million bond refinancing to help to strengthen its balance sheet.
Asos said that the Topshop deal would have £10 million to £20 million negative adjusted ebitda “impact” in its first year of operation but would be “increasingly ebitda accretive over time”.
It expects cash flow to be broadly neutral, with capex of around £130 million and cash interest of £35 million. The company reported free cash inflow of £37.7 million in the current financial year, a £250.7 million improvement year-on-year.
Calamonte said: “The medicine we have taken — reducing our intake, discounting to clear old stock and rigorously revising our operations — while necessary, has not made for attractive financial results over the last two years. However, we are confident now have the right team, processes and business resilience on which to drive sustainable, profitable growth.”