Fashion Retailer Struggles in Challenging Environment

  • Asos cuts full-year guidance due to falling sales
  • Sales fell by 15% in the three months ended 3 September
  • EBIT expected to be around £40m to £60m range
  • Free cash inflow in H2 estimated at £60m excluding refinancing costs
  • Strong start to the period but declining sales in July and August due to UK clothing market deterioration
  • Q4 expected to be profitable with £300m profit improvement and cost savings
  • Adjusted gross margins increased by 1.5% year-on-year
  • Inventory down by 30% year-on-year, ahead of guidance
  • Cash and undrawn facilities totalling £430m at year-end
  • Asos CEO: ‘driving change’ agenda has made the business leaner and more resilient

Asos has lowered its full-year guidance after sales fell by 15% in the three months ended 3 September. The group now expects EBIT to be around the bottom of the guided £40m to £60m range, with free cash inflow in H2 expected to be roughly £60m excluding refinancing costs. While the fashion retailer had a strong start to the period, it attributed its declining sales in July and August to a deterioration in the UK clothing market. Despite the decline in sales, Asos maintains that Q4 will be another profitable quarter after approximately £300m of profit improvement and cost savings have been realised. This has been in line with the FY23 target set under its ‘driving change’ agenda, which increased order profitability by more than 35% year-on-year. Adjusted gross margins also increased by 1.5% year-on-year, due to lower freight and duty costs that were partially offset by tactical investment in promotional activity to prioritise stock reduction in a challenging trading environment. As such, inventory was down by roughly 30% year-on-year and ahead of guidance, supporting the transition to the new commercial model in FY24 and beyond. Cash and undrawn facilities totalling about £430m at year-end, providing substantial liquidity following the refinancing and equity raise announced in May 2023. José Antonio Ramos Calamonte, CEO of Asos, said: ‘Asos has delivered on the ‘driving change’ agenda, and as a consequence, is a leaner and more resilient business 12 months after its launch. We continue to focus on bringing the best fashion and the most engaging proposition to our customers as we make progress on our journey to sustainably profitable and cash generative growth.’

Factuality Level: 8
Factuality Justification: The article provides accurate information about Asos’s financial performance, including sales decline, adjusted gross margins, inventory reduction, and the CEO’s statement on the company’s progress. It also includes relevant details about the ‘driving change’ agenda and refinancing efforts.
Noise Level: 3
Noise Justification: The article provides relevant information about Asos’s financial performance and its CEO’s comments on the company’s progress in implementing cost-saving measures and improving profitability. It also mentions the impact of promotional activities and inventory management. However, it could benefit from more analysis or context on the broader fashion retail industry trends and potential long-term implications.
Financial Relevance: Yes
Financial Markets Impacted: Asos’s stock price may be impacted by the lowered guidance and reduced sales figures, affecting investors and shareholders.
Financial Rating Justification: The article discusses Asos’s financial performance, including changes in sales, EBIT expectations, and cost savings, which directly pertain to financial topics. Additionally, it mentions the potential impact on the company’s stock price due to lowered guidance and reduced sales figures.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Extreme Rating Justification: There is no extreme event mentioned in the article.

Reported publicly: www.retailsector.co.uk