Investors looked past falling sales at ASOS on Thursday and chose to hone in on successful cost-cutting and the return to profit in the three months to 31st May.
ASOS shares were over 13% higher at the time of writing on Thursday after reporting adjusted earnings before interest and tax (EBIT) increased more than £20m year-on-year.
The online retailer achieved higher profitability by cutting costs across the business, which involved clearing out existing stock and buying less.
Cost cuts were essential for profitability, and the degree of the cuts is highlighted by reported revenue for the period falling 11%. A return to physical shops after the pandemic and a general slowdown in consumer spending has knocked sales.
Investors will also be encouraged by the group’s comprehensive action plan to drive higher profits in the future, which involves strengthening their personnel, improving the customer journey, and ‘right-sizing’ stock.
ASOS have set out four pillars in their ‘Driving Change’ agenda:
- 1. Renewed commercial model;
- 2. Stronger order economics and lighter cost profile;
- 3. Robust and flexible balance sheet;
- 4. Reinforced leadership & culture
ASOS is now targeting £40-60m EBIT in H2 2023.
José Antonio Ramos Calamonte, Chief Executive Officer, commented on recent performance:
“I am confident in the direction we are going, we have restored profitability in the period and made good progress in clearing through our inventory to generate cash. We retain ample balance sheet flexibility and reiterate our expectations for improved profitability, cash generation and reduction in net debt in H2 FY23 and beyond.”
ASOS shares were 13% higher at 370p at the time of writing.