17th Apr 2024 09:59
(Alliance News) - Asos PLC is making "significant progress with its strategic endeavours", which are setting the business up for growth in the fourth quarter of 2024, analysts at Berenberg said on Wednesday.
But not all analysts were convinced. Katie Cousins at Shore Capital was less optimistic, reiterating a 'sell' rating on Asos.
"We believe the current backdrop remains tough, noting supply concerns, low consumer confidence and weather impacts," she said.
Shares in the London-based online-only fashion retailer were up 4.9% to 349.60 pence each on Wednesday morning. They remain down 53% over the past 12 months.
Asos reported that revenue in the 26 weeks to March 3 fell 18% to GBP1.51 billion from GBP1.84 billion a year earlier.
Its pretax loss, however, narrowed to GBP270.0 million from GBP290.9 million.
Cost of sales in the period were reduced to GBP903.5 million from GBP1.18 billion.
Asos hailed "disciplined inventory and cost management" and noted an improvement in its free cash outflow outcome. It reported free cash outflow of GBP21.1 million, compared to GBP258.8 million a year prior.
Chief Executive Jose Calamonte said: "At the beginning of this year we explained that FY24 would be a year of continued transformation for Asos as we take the necessary actions to deliver a more profitable and cash generative business. Under our back to fashion strategy, we set out three priorities for the year - to offer the best and most relevant product, to strengthen our relationship with customers and to reduce our cost to serve. We have delivered on each of these in the first half of the year."
Looking ahead, Asos reiterated its guidance for a 5% to 15% sales decline for the full-year.
In a separate announcement, Asos said Dave Murray will become chief financial officer from April 29.
Interim CFO Sean Glithero will stick around for a handover period but depart the company thereafter. Glithero has been in the role since May last year.
Berenberg noted Asos is tracking ahead of its full-year inventory reduction target and is achieving excellent results in its Test & React model, which is growing rapidly.
The broker explained in the Test & React model is delivering a significantly higher gross margin in the categories in which it has been rolled out.
The first half gross margin for the associated Test & React categories was around 58% versus the group gross margin of around 40%, Berenberg pointed out.
Strategic progress is improving the operational agility of the organisation, which will culminate in a higher level of profitability, in Berenberg's view.
Berenberg said it continues to be encouraged by signs of strategic momentum at Asos. It reiterated a 'buy' rating with a new price target of 490p, down from 510p.
Cousins at Shore Capital pointed out that during the period, active customers and total visits both were down 14%, average order frequency was down 8%, and conversion was down by 20 basis points.
The only metric to see an improvement in the first half, albeit slight, was average basket value, which was up 0.8%, she noted.
She also highlighted that the US business appeared particularly weak in the period, with sales down 25% on-year, with visits down 16% as the group faces market weakness, strong competition and a reduced marketing effort.
Liberum also was in the less optimistic camp among analysts, reiterating a 'sell' rating.
"Transition to the new operating model continues to be painful," the broker said.
"While short-term focus remains on fixing the model and cash generation, we worry about how quickly revenues return to meaningful growth to change the [free cash flow] profile once working capital benefits have been fully delivered by end of [financial 2024]."
By Jeremy Cutler, Alliance News reporter
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