ASOS shares jump as efficiency improves

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.

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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.

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“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.

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