ASOS is undergoing a transformation strategy in an effort to boost profitability at the expense of sales by reducing discounting and improving stock management.
The company’s sales fell 11% in the year to 3rd September but profitability and cash flow improved dramatically, especially in the second half.
ASOS’ adjusted H2 EBIT rose more than 100% compared to the same period a year ago and cashflow increased by £140m.
ASOS is implementing strategies to boost basket sizes and reduce the cost of servicing their least profitable customers. The company is also tackling problems with returns by placing restrictions on buy now, pay later purchases.
However, for all the progress in their transformation, the market seems unimpressed with the update and shares were down 1% at the time of writing.
ASOS shares are down 24% in 2023 and trade close to the lowest levels in over a decade.
“ASOS released a full-year trading statement and profitability rather than growth continues to be the order of the day. Sales were down 15% over the final quarter of the year as a wet July and August helped drive a slowdown in the UK clothing market,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
“Despite this, there’s some good news on the profitability front. Gross margins are heading back in the right direction as freight costs have pulled back from 2022’s peaks.
“The oversized inventory levels have also been brought back down to earth faster than expected, falling around 30% last year. And as a sign that the group’s profitability drive is taking shape, 9% lower customer numbers were being offset by a roughly 35% increase in profit per order. That’s expected to put operating profit at the lower end of the group’s £40-£60m full-year guidance, but should provide continued tailwinds for the bottom line moving forward.”