ASOS sales dropped 7% to £1.84 billion in the six months to 28 February 2023 while pre-tax losses widened to £290.9 million (2022: £15. 9 million) – in a large part due to stock write-offs – but the online fashion giant said its turnaround plan was on track.
The business said that a challenging trading backdrop and “deliberate actions” – such as reduced markdowns, reduced width in product assortment and reduced marketing spend – had resulted in the sales drop, with the actions accounting for 50% of the sales decline since December. These moves have been put in place to improve “order economics” and profitability as the business shifts its focus to the improving the bottom line rather than top-line growth.
UK sales were down 10%, Europe was flat, the US down 7% and the rest of world down 12%, the company revealed. The variation in results across the territories was accounted for by differences in trading backdrops and country-specific “profit actions”. While UK sales had dropped ASOS said it was improving market share among its core demographic of 18-35 year old and was taking a larger share of their fashion spend.
The reported loss of £290.9 million included £203.5 million of adjusting items, primarily associated with its “Driving Change” agenda, such as £128.2 million worth of stock write-offs and £49.4 million of non-cash property impairments due to closure costs relating to the reduction is size of its HQ and logistics footprint.
It said that its gross margin trend was encouraging. While it reported flat gross margin for the period, in February, March and April it has seen an improvement of more than 300 basis points year-on-year due to lower freight and duty rates. Meanwhile, stock levels have been reduced by 9%, ahead of its planned reduction of 5%.
ASOS ended the half with cash and undrawn facilities totalling £408.6m at what it said was “typically the seasonal trough in its net working capital cycle”.
CEO José Antonio Ramos Calamonte said: “Our focus is on improving our core profitability, prioritising order economics over top-line growth and I am pleased with the strategic and rapid operational progress the business has made in the first half of the financial year, against some very challenging trading conditions. Thanks to the hard work and commitment of our teams, we have accelerated the roll-out of our new commercial model, delivered more than £100m of profit optimisation and cost saving initiatives, extended our financing facility and continued to build out our top team while remaining committed to our Fashion with Integrity agenda. Taken together, these measures will create a more sustainably profitable and cash generative business as we reinforce our position as a leading destination for our fashion-loving customers.
“While some of these changes have impacted short-term sales growth, there are many causes for optimism as we progress through the second half of the year. We are improving our gross margin run rate in the face of significant headwinds, are starting to see the benefits of a repositioned stock profile, and are taking action to reduce the proportion of our sales which are not profitable. Initiatives are in place to drive a further c.£200m of benefit in the second half and I am very confident of our return to sustainable profit and cash generation in the second half of the year and beyond.”