Industry reacts to ASOS results: "Long way to go to restore investor confidence"

ASOS sales dropped 3% in the four months ending 31 December 2022, as the online giant was hit by subdued demand in the UK due to the funeral of HM the Queen and postal strikes ahead of Christmas.

Total group revenue dropped to £1.34 billion, which it said was in line with expectations, with the UK dropping 8% to £591.3 million. The retailer attributed this to a sales hit in September due to the Queen's death and disruption from industrial action from the Royal Mail discouraging e-commerce sales.

ASOS also pointed out that it was facing tough comparisons to the prior year when sales spiked due the onset of the Omicron COVID-19 variant encouraging e-commerce activity.

Despite the drop off in sales the business said it was on course to deliver against its 'Driving Change' agenda outlined by CEO José Antonio Ramos Calamonte in the autumn, in which he said ASOS would shift the focus to profitability by measures such as reducing FY22 year-end inventory levels by c.5% by the end of H1 FY23. This was said to be on track.

TheIndustry.fashion has curated commentary from a range of industry experts and analysts to gauge their reaction to the numbers and gain insight into how the future looks for the online fashion and beauty retailer.

José Antonio Ramos Calamonte, CEO at ASOS: 

"We are undertaking necessary strategic and operational changes, with our focus shifting from prioritising top-line growth to building a more relevant and competitive fashion business with a disciplined approach to capital allocation and ROI. At the same time, we are working to reinforce our credibility as a leading destination for our fashion-loving customers.

"We have made good early progress against a number of measures to simplify the business, including re-positioning our inventory profile, reviewing our operational model in our top markets and reducing our cost base. While there is more to do, I am pleased by the progress made in this period and am confident in the direction we are going. We retain ample balance sheet flexibility and reiterate our expectations for FY23."

Richard Hyman, Partner at Thought Provoking Consultants:

"Today’s trading statement was better than feared and the market has responded positively. Nevertheless, there are some key health warnings that need to be born in mind. The first concerns the significance of these statements and extent to which they illustrate a meaningful picture of underlying trading. These concerns apply to all statements, not just ASOS’s.

"They are not independently audited, there are no rules so companies are not comparable. And they are not even necessarily comparable from one year to the next for individual companies. Beyond this is the thorny subject of returns and how they are treated, especially relevant to a pure play like ASOS. These latest numbers cannot include returns because they will not all be in yet. Have they estimated them? Is last year’s figure after returns, or before? Again, these questions should be applied to every reporting company.

"So in very broad terms, the ASOS numbers show improvement and management’s comments suggest clear plans to put the business on a more robust footing. Much expectation has clearly been invested in the new initiatives (especially around better stock management) bearing fruit, and quickly. The overall demand outlook will provide very little assistance here and one hopes the new management teams confidence is justified."

Charlie Huggins, Head of Equities at Wealth Club:

“ASOS’ trading performance in the first few months of the year has been disappointing and stands in stark contrast to the likes of NEXT. Inflationary pressures on its customers, a normalisation of returns rates and mounting costs have conspired to produce a cocktail of headwinds. This led to a new CEO coming in and a new strategy designed to turn things around.

"ASOS’ business model isn’t well set up to deal with the current economic environment. With no stores and a 20-something customer base with a tendency to over-order, dealing with returns is a very costly problem. This contributes to low profit margins, meaning it only takes a small decline in sales to blow a large hole in profits. So far, ASOS has resisted following peers like Boohoo in charging for returns, but at some point its hand may be forced.

"Added to this, ASOS' operational performance has left an awful lot to be desired and the new CEO, José Antonio Ramos Calamonte, has not held back in shining a light on these issues. The growth at all costs approach clearly hasn't worked, especially overseas. Money has been spent in all the wrong areas, leading to an inefficient and overly complex organisation. The first job facing Calamonte is to simplify the business and refocus ASOS on its core strengths. It sounds like the culture also needs completely overhauling.

"Clearly it is going to take time for these actions to bear fruit, but at least the group is now heading in the right direction. One thing's for sure - it won't be a quick fix and ASOS has a mountain to climb to rediscover its former glory.”

Victoria Scholar, Head of Investment at Interactive Investor:

“ASOS reported UK sales during the final four months of 2022 down by 8%, blaming weak consumer sentiment while overall revenue dropped by 3%. The online retailer outlined a cost savings and profit optimisation plan including around a 10% reduction in staff costs, which it says will have an impact of over £300 million in the full-year 2023. Investors are cheering these plans, sending shares higher by around 15% in today’s trade. Even after today’s jump, shares in ASOS have still slumped by more than 70% over the last year and are down more than 90% over a five-year period, highlighting how ASOS still has a long way to go to restore investor confidence.”