ASOS shares slipped in early trade on Tuesday despite the online fashion retailer announcing final results on Tuesday that demonstrated a year of progress and delivery on goals to reduce inventory and refocus on fashion.
ASOS has reported significant financial improvements in its latest results, with adjusted EBITDA reaching £80.1m in FY24, positioning at the upper end of market expectations.
The company achieved a remarkable turnaround in free cash flow, generating £37.7m, representing a £250.7m improvement compared to the previous year. This enhancement was supported by comprehensive refinancing and the establishment of a Topshop and Topman joint venture.
ASOS has completed a substantial stock clearance program, reducing inventory levels by approximately 50% since FY22 to £520m. This reduction included a £100m write-down as part of the transition to a new commercial model. The company has significantly improved its stock profile, with aged inventory reduced by 75% year-on-year and more than 80% of current stock less than six months old.
“Asos is executing its “back-to-fashion” strategy by shifting its focus from dresses to a more balanced mix of casual wear, athleisure, and everyday styles,” said Yanmei Tang, Analyst at Third Bridge.
“This change not only enhances profitability but also allows for a wider range of trends and storytelling in marketing. By refining its offerings, Asos aims to attract a diverse customer base, from aspiring teenagers to style-conscious thirty-somethings.
“Asos has shifted its focus from rapid sales growth to profitability, reducing stock and emphasizing products with higher contributions. While this may hurt short-term sales, our experts believe it’s a smart move for long-term sustainability, especially in challenging markets like the US and Germany, where returns can be high.”
Looking ahead to FY25, ASOS projects substantial margin improvements, forecasting at least a 300 basis point increase in gross margin to exceed 46%. The company expects adjusted EBITDA to grow by at least 60% to between £130m and £150m, despite an anticipated £10m to £20m negative impact from the Topshop and Topman joint venture in its first year. Free cash flow is expected to remain neutral, with capital expenditure projected at £130m and cash interest costs of £35m.
In the medium term, ASOS aims to achieve a gross margin of approximately 50% through increased full-price sales and flexible stock models. The company plans to reduce capital expenditure to 3-4% of sales and targets an adjusted EBITDA margin of around 8%.
Management expects these improvements, combined with enhanced profitability and cash flow, to contribute to reduced net debt and interest levels over time.
The ASOS share price was down over 49ers % at the time of writing.