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ASOS Has A Mountain To Climb

ASOS, the fast-fashion online retailer, has released a trading statement for the four months ended 31 December 2022:

  • Revenue fell 3% with UK sales down 8% reflecting ‘weak consumer sentiment’ and disruption in the delivery market.
  • Full-year guidance for cash outflow of (£100m) – £0m reiterated.
  • In October 2022, CEO José Antonio Ramos Calamonte outlined four key actions to drive improved operational performance. ASOS says it has made ‘significant progress’ against these.

Charlie Huggins, Head of Equities at Wealth Club, commented:

“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 Mr Calamonte is to simplify the business and re-focus 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.”

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