19th Oct 2022 13:25
(Alliance News) - The market liked Asos PLC's self-help measures, though its annual results showed just how much work the online retailer has to do to revive its fortunes.
Investors still appear to have faith in Asos, which outlined a "diagnostic" of its issues on Wednesday.
Asos shares were 9.2% higher at 535.00 pence each in London on Wednesday afternoon. The stock is down almost 80% since the start of the year, however.
Asos revenue in the financial year that ended August 31 rose 0.7% to GBP3.94 billion from GBP3.91 billion a year earlier. However, Asos reported a swing to an annual pretax loss of GBP31.9 million of GBP177.1 million.
Adjusted pretax profit fell 89% to GBP22 million, an outcome which Swiss bank UBS noted was below consensus of GBP24 million.
Asos went into the annual results with liquidity fears hanging over it.
Asos on Monday said it was in talks to amend covenants in a credit facility, a move the online retailer believes will offer it better "financial flexibility" amid the current economic uncertainty.
Sky News over the weekend had reported that one major credit insurer for Asos's suppliers has reduced its support. This could force Asos to pay for products upfront.
AJ Bell analyst Russ Mould commented: "There's bad news and really bad news and given revelations about Asos' credit insurance and amended lending terms had hinted at something more existential, today's update while sobering wasn't apocalyptic."
Among its issues, Asos said in its "diagnostic", is an underperforming international arm, its supply chain operations, its "customer acquisition and commercial model", and the need for data and digital improvements.
Over the next 12 months, it will look to improve inventory management, reduce its costs and "reinforce" its leadership team and culture.
"Crucially, recently appointed CEO Jose Antonio Ramos Calamonte has demonstrated he is taking the challenges in front of the company seriously," Mould added.
A consumer confidence-related cloud hangs over retail, darkening seemingly with almost every inflation print. The latest reading by the Office for National Statistics on Wednesday said inflation now stands at 10%.
Hargreaves Lansdown analyst Matt Britzman commented: "It's the [Asos] outlook comments that'll grab the headlines. Consumers feeling the pinch of higher costs across the board are changing spending habits, making it especially tricky to predict how the next year will look."
Asos predicted a loss for the first half of its new financial year. In addition, it expects a GBP100 million to GBP130 million non-cash stock write-off for the new financial year. Capital expenditure, at GBP175 million to GBP200 million, will be below the mid-term range of GBP200 million to GBP250 million.
Analysts at Liberum believe it will take Asos more than a year to get on top of the worries it faces.
"The new CEO has set out his strategy which includes a renewed commercial model focused on shorter buying cycles, reduced stock levels, and new clearance channels, as well as making Asos leaner by removing excess costs and being more conservative in capital allocation to international markets," Liberum commented.
"We found the results presentation underwhelming – it left us with many questions unanswered, the strategy appeared under baked and consequently, the management team sounded underprepared. We are also not overly convinced it takes just 12 months to get your customer base off the discounting drug, especially in the current consumer environment."
Liberum lowered its recommendation for the stock to 'sell' from 'hold'. It has a 500p price target, lowered from 700p.
Asos was once the darling of London's junior AIM market. As the business matured, however, the Main Market felt like a better fit. The move there was sealed in February.
While Asos has done some growing up, its target audience has too. "Fashion-loving 20-somethings" are now increasingly environmentally conscious and somewhat sceptical of fast fashion.
Such a trend was typified when ITV PLC's hit reality show Love Island, popular with young adults, dropped I Saw It First as its clothing provider, turning to eBay Inc's 'pre-loved' appeal instead.
I Saw It First is a fast fashion firm now owned by Frasers Group PLC.
By Eric Cunha; [email protected]
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