Asos looks to new approach as it tumbles to a loss

Asos’s (ASC) new commander-in-chief, José Antonio Ramos Calamonte, has a lot on his plate. The fast-fashion retailer’s share price has plummeted over the last year as the pandemic online shopping boom fades into history, discretionary spending is pummelled by the cost of living crisis, and inflation and supply chain headwinds hit margins.

These results highlight the scale of the challenge. Asos fell to a statutory loss as chunky costs, including £25mn spent on strategic change initiatives and £19mn of impairment charges, combined with flat revenues to push it into the red. Withdrawal from the Russian market hit profits by £14mn, active customer numbers were flat at 26mn, average basket value was down by 5 per cent to £38, and the gross margin fell by 180 basis points to 43.6 per cent due to high sea freight rates.

Calamonte recognises that change is needed. He unveiled a “new commercial model” which is intended to cut costs and improve stock management, with a stock write-off of £100mn-£130mn expected. Relatively poor non-UK performance will result in a reassessment of “resource and capital allocation”, an important step. But the company expects lower capex (capital expenditure) and another loss for the first six months of 2023, with a return to positive cash generation in the second half.

Stifel analysts said that Asos’s conundrum is “how to generate positive cash flow when profit margins are kept low by still-high freight costs, marketing and increased competition and yet capex must be spent on technology and infrastructure”. Investors will be hoping that the company’s new approach will swiftly bear fruit and will spur positive momentum, with the share price boost on results day and the renegotiation of banking covenants good signs. But the short-term will remain challenging. Hold.

Last IC View: Hold, 1,572p, 12 Apr 2022