ASOS shares were trading higher on Wednesday after announcing interim results for the 26 weeks to 3rd March.
The group had signalled a sharp drop in revenue in a trading statement released earlier this year so the 18% drop in sales was expected and already priced in.
Investors were more concerned with the company’s progress in streamlining the business and improving inventory efficiencies. In this respect, today’s announcement was a win.
ASOS set itself a target of reducing stock levels to £600m, which it beat, with stock falling to £593m. This was achieved in part by selling through 83% of its AW24 stock levels, a 17% improvement on last year.
The company’s focus on efficiencies has resulted in faster stock turnover with a 10% increase in 12-week sell-through levels, meaning as a group, they are carrying fresher products.
“As guided by ASOS’ management, sales have taken a dive and today’s reported 18% fall in revenue might not feel like progress. In response to a tougher environment, ASOS is undergoing a significant makeover, shifting focus to profitability and cash generation. The move to enhance the balance sheet and get the business on track for a more profitable future is encouraging, but it hasn’t been easy for investors,” said Guy Lawson-Johns, equity analyst, Hargreaves Lansdown.
“Behind the scenes, there are early signs that strategic ambitions are starting to bear fruit. Efforts have been made to streamline the inventory and the group has cut £593mn in stock (£7mn away from pre-COVID levels).
“This move has not only released cash for reinvestment elsewhere in the business but has also led to a significant improvement in free cash flow of around £240mn year-on-year. Although there is still more work to be done, once this is accomplished, it should provide ASOS with some much-needed momentum.
“Under the new commercial model, improvements are also being seen in higher-margin own-brand sales. The roll-out of Test & React is helping it meet customers rapidly changing preferences and build towards its medium-term target of 30% own-brand sales. Despite these operational improvements, there are still structural hurdles to overcome. It’s no secret M&S and Next have been growing sales in the third-party brands ASOS is known for, and newer entrants like Temu are taking market share from the fringes.”
ASOS shares were 3.9% higher at 346p at the time of writing. Shares had been as high as 371p in early trade.
