ASOS results are grim, but after taking its medicine, CEO talks of recovery

November 5 may be a big news day globally, but ASOS still has the ability to grab headlines given that it’s results day for the fashion e-tail giant and given how poorly it’s performed in recent periods.

So what did its results for the year to early September tell us? The general message seems to be ‘a tough year, with lots of minuses but one in which progress was made’. 

Let’s deal with the numbers first. Adjusted group revenue fell 16% on a like-for-like (LFL) basis to £2.896 billion. On a statutory basis, group revenue was down 18% at just under £2.906 billion. 

Retail sales in the UK were £1.27 billion, declining 14%, or 12% LFL. And in Europe they were just under £978 million, down 14% in total, or 13% LFL. 

For the US they were just over £298 million, with sales plunging 32%, or 28% LFL, and in the rest of the world sales topped £214 million, although this was down 29%, or 30% LFL.

Active customer numbers fell 16%, although the average basket value was up 2% at £41.07. Average order frequency fell 4% and total shipped orders were down 20%, while total visits fell 15%. Conversion slipped from 3.1% to 3%.

Margins and profits

The adjusted gross margin dropped 80bps to 40.7% while the reported gross margin fell 110bps to 40%. And adjusted EBITDA was down 44.4% at £80.1 million. Meanwhile adjusted EBIT was down £52.5 million for a loss of £81.5 million.

The reported operating loss widened to £331.9 million from the prior year’s £248.5 million loss. Finally, the adjusted loss before tax widened from last year’s £70.3 million deficit to £126 million this year and the reported loss before tax was £379.3 million this time. That’s £82.6 million worse than in the previous year.

That said, the company’s net debt improved by £22.4 million and its cash outflow last year of £213 million flipped to a cash inflow this time of £37.7 million.

Green shoots?

Even with those positives, it’s clearly an uncomfortable set of figures to read, although the results were far from unexpected.

The company pointed to the fact that it made progress during the year. Its ‘Back to Fashion’ targets were met with its stock clearance complete; its new commercial model embedded; Test & React scaled above 10% of own-brand sales; flexible fulfilment doubled and unit economics transformed with the variable contribution per order now up 28% compared to FY22.

What that all means in practice is that the foundations of “a more agile and profitable business” are in place.

As mentioned, there was also a significant cash flow improvement and with its stock transition complete, inventory is down around 50% since FY22. 

The company has had a big problem in recent years with too much old stock hanging around, but its stock position “now offers greater newness for customers” with aged stock down around 75% year on year and up to 80% of stock under six months old. 

That’s obviously hugely important for any retailer that wants to be taken seriously by youthful consumers as a key destination for their fashion spend.

And ASOS said the new commercial model is “resonating with customers”. Sales of “newness” were up 24% year on year in the last three months with only 6% higher stock, “demonstrating strong demand for full-price product”. 

This was offset at group level by around a 30% decline in sales of old inventory from around 60% lower stock levels. But importantly, “this has a sustainable positive impact on gross margin and profit, despite the near-term revenue headwind,” the company said.

ASOS said “strong foundations” are now in place, and it’s “shifting focus in FY25”. Presumably that means its moving on from its emergency stop-the-ship-from-sinking measures. It now has a “focus on taking actions to delight customers, doubling Test & React to 20% of own-brand sales… adding exciting brand partners, empowering faster innovation through our Technology and Digital Product transformation, launching loyalty programme, launching Topshop.com, and further tackling the causes of unnecessary returns”.

As a result, in FY25, driven by a significant increase in its full-price sales mix, it expects at least a 300bps increase in gross margin to over 46% and adjusted EBITDA to increase by at least 60% to £130 million-£150 million.

View from the top

CEO José Antonio Ramos Calamonte expressed pride in what has been achieved but said he knows “we will be asked by analysts or investors, ‘when will ASOS grow again?’, and growth remains an important part of our future”.

He said the company has had to “focus on the inputs — which for the last two years have been weighted towards taking the medicine of reducing stock and exiting unprofitable activities. As we move into Phase 2 of our journey, the year ahead, and beyond, will be increasingly weighted towards taking actions that delight our customers to win more of their time, love and fashion spend. 

“However, from experience we know that exactly when that results in growth in revenue is not something we should try to manage. We could, for example, decide to accelerate growth next month by re-engaging promotional marketing or discounting product, but that would not be in the long-term interests of the business. We will do things in the right way and we’re going to be patient.”

He added that “we have already seen the green shoots in the performance of our new stock in recent months which gives us confidence that our new commercial model is delivering customers the right product at the right time. This will be the driving force behind our gross margin improvement back towards 50% in the medium term… I am confident that we have something incredibly unique to offer customers and that in the coming years we can return to growth while generating meaningful, sustainable free cash flow”.