ASOS investors have baulked at the news the online retail company will continue to sacrifice revenue in an attempt to bolster EBITDA through 2024.
The retailer said adjusted revenue fell 11% in the 2023 full year as the company focused on efficiencies and carving out higher EBITDA by cutting costs and improving stock management.
Adjusted EBITDA fell 59% to £124.5m in the year to 3rd September 2023.
“The past year has been another annus horribilis, but then again it was always going to be. You cannot perform major surgery on a broken business without taking considerable pain. ASOS still remains in intensive care, meaning the year ahead is also likely to be very painful,” said Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club.
ASOS shares were 9% lower at the time of writing on Wednesday.
“Profitability rather than growth remains the order of the day at ASOS. There were no major surprises in full-year results, revenue had fallen at double-digit rates as the number of active customers shrank 9% to 23.3m. With shoppers clearly struggling with the cost-of-living crisis and looking elsewhere for their latest fix of fashion, ASOS expects these double-digit revenue declines to continue into the new financial year, before turning positive again in the final quarter,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
Chiekrie continued to explain the financial situation ASOS was far from ideal as debt rose cash outflows increased.
“With net debt and cash outflows rising, an £80m equity raise was needed last year to help shore up the balance sheet. This isn’t usually a good sign for existing shareholders as it waters down their stake in the company. On the flip side, the cash injection has given ASOS some wiggle room to execute its ongoing transformation, and there are some very early signs that it’s bearing fruit,” said Chiekrie.
“Despite overall profit coming in lower last year, profit per order was up over 30% as the group streamlined its offering and narrowed its focus on higher-quality, more profitable customers. And good progress has been made in trimming the mountain of excess inventory in ASOS’ warehouses, down around 30% year-on-year. The discounts used to help clear this stock have hurt margins though, and the group turned loss-making.”