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ASOS: a weak sales performance in 'very challenging' conditions

ASOS, the fast-fashion online retailer, has released interim results for the six months ended 28 February 2023.

  • Revenue declined by 7% in the first half and was down 15% in the second quarter.
  • The group made an adjusted operating loss of £69.4 million, although ASOS remains on track to make a profit in the second half.
  • Due to 'very challenging' trading conditions the group now expects a free cash outflow of around £100m for the full year, at the bottom end of its prior guidance.

Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, commented: “This is a weak sales performance from ASOS with revenue down significantly in the second quarter and further weak trading in March and April. It shows that the operational turnaround plan won't be a quick fix, with ASOS having a mountain to climb to rediscover its former glory.

The weak sales are due to two reasons. First, the trading backdrop remains exceptionally challenging, with customers having cut back on online purchasing as economies have reopened following the pandemic. The second reason is due to ASOS' own actions of prioritising profit over revenue.

For too long, ASOS has had all the wrong priorities. The biggest problem was that it cared more about sales than the bottom line. This is now changing under new CEO José Antonio Ramos Calamonte. Promotions and marketing spend have been significantly cut back and a series of cost actions have been initiated to improve margins.

There are some early signs of success. ASOS remains confident of making a profit in the second half, despite the challenging trading conditions, while cash generation appears at least to be on an improving trajectory. But this is coming at the cost of short-term sales.

The problem ASOS faces is that cost-cutting can only go so far. In the long-run, ASOS will need to get its sales moving in the right direction. And to do that it needs to find a way of delivering brilliant service to its customers, at the right margins. That battle has barely even begun.

In summary, ASOS is off the operating table, but it remains in intensive care. It will be some time before the success of the recovery can be judged."