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ASOS results: industry analysts offer their reactions

Tom Shearsmith
12 April 2022

ASOS revenues were up 4% in the six months to 28 February, at just over £2bn, in the face of industry wide supply chain challenges and ongoing COVID restrictions, a performance the online fashion giant described as "encouraging" and in line with guidance. However profits were hit by rising costs as it slipped to a reported pre-tax loss.

During the latest six-month period ASOS posted adjusted profit before tax of £14.8m, which was down 87% but also in line with guidance, as the supply chain crisis led to higher freight costs and impacted the availability of new product. Gross margin was down from 45% to 43.1%. However the business posted a reported loss before tax of £15.8m, which it said reflected costs of adjusting items which totalled £30.6m.

There was no update on the search for a new CEO to replace Nick Beighton who departed in October, with CFO and COO Mat Dunn holding the reins of the business until an appointment is made.

Responding to the results, Dunn said: "ASOS has delivered an encouraging trading performance, against the continuing backdrop of significant volatility and disruption. The team has acted with determination and pace and is making good early progress on the strategic plan for the next phase of growth, as set out at our CMD [Capital Markets Day] last year.

The market appears not to have been rocked by the results, given they were in line with expectations, and shares closed nearly 5% up today at 1,612p. TheIndustry.fashion spoke to a range of industry analysts to gauge their reaction to the numbers and gain their insight into how the future looks for the British online fashion giant.

Analyst reaction:

Richard Hyman, Partner at Thought Provoking Consulting and retail analyst:
"Today's results from were certainly disappointing, but they were directionally predictable. Having benefited from a period when its High Street rivals were often either shut or trading through vastly reduced footfall, a chunk of that benefit was certain to disappear once the public could easily return to physical shopping. Beyond this, ASOS is also looking for a new CEO and Chairman - reorganising the leadership in such a fundamental way is bound to cause a little disruption, especially during such a challenging trading period. The results reflect just how challenging the market has been. However, despite all of this ASOS remains a strong retailer with many attributes.

"The underlying revenues across the business remain good and the longer term potential for international growth is also positive. The new economic reality is that everyone is going to have to run faster. How fast ASOS can run and to realise its potential will be hugely influenced by the new leadership team. The search is taking rather a long time and needs to be resolved sooner rather than later. But the key is finding the right people."

"The new economic reality is that everyone is going to have to run faster. How fast ASOS can run and to realise its potential will be hugely influenced by the new leadership team."

Matt Britzman, equity analyst at Hargreaves Lansdown:
"Profits are heavily down at ASOS as the online shopping boom seen over lockdowns comes crashing back to reality. Management had previously pointed to lockdown related benefits to pre-tax profit being in the region of £50m, if we remove that there’s still a decent sized gap in today’s numbers from last year - albeit an expected one.

"But that’s where the concerns lie, and it’s no surprise that supply chain issues and inflation have hurt margins, but commentary from management effectively waves a red flag on full-year expectations - guidance hasn’t been changed, but warnings of a significant increase in risks rings alarm bells and shares are down over 3% as a result.

"The broader online retail sector finds itself in somewhat of a sticky spot, with inflation at levels not seen for years the squeeze on finances will slowly start to feed into changing buying habits. When you add on the resurgence of High Street shopping and higher return rates, the Goldilocks conditions seen last year are well and truly over. That’s a pretty sombre backdrop and means the outlook from here is a tricky one to be confident about."

ASOS

Pippa Stephens, retail analyst at GlobalData said:
"The ongoing global supply chain crisis notably impacted its performance, as longer lead times reduced stock availability, especially internationally, while also damaging the relevance of some ranges. ASOS has also felt the pressure of increasing inflation, particularly in its freight and delivery costs, which took a toll on the retailer’s margins, contributing to an operating loss of £4.4m. With UK inflation rates expected to peak in April, consumers’ budgets will be squeezed further in H2, causing a downturn in discretionary spend.

"The retailer is continuing to focus on growing internationally, launching in more Nordstrom stores in the US, as well as increasing the range of products available through the department store, with this expanding partnership helping it to build greater awareness in the country.

"In H1, ASOS bolstered its delivery proposition by launching its Partner Fulfils pilot scheme with Adidas and Reebok, in which products are fulfilled from the brands’ own warehouses once they have sold out in ASOS’ fulfilment centres, increasing product availability and improving customer experience. Since the end of the reporting period, the pilot has been expanded to include styles from Adidas and Reebok not currently stocked in ASOS’ fulfilment centres, and by the end of FY2021/22, it plans to roll it out to select European countries and onboard additional brands, giving increased choice to shoppers.

"Conversely, returns rates have continued to rise in H1 and into H2, though have not yet exceeded pre-pandemic levels. This is due to consumers opting for more fashion-led items, rather than the loungewear they primarily purchased during the lockdowns, while cancelled Christmas parties also drove an influx of partywear returns. To help bring returns rates down, ASOS should display products on more varied body shapes, either by shooting images on multiple models, or by making use of AR technology."

"To help bring returns rates down, ASOS should display products on more varied body shapes, either by shooting images on multiple models, or by making use of AR technology."

Danni Hewson, financial analyst at AJ Bell, said:
"ASOS has gone from an operating profit to a loss, its margins are declining, and it has moved from a net cash to net debt position. That’s not the direction of travel one would expect from the once online retail superstar. The outlook for the business is gloomy given the financial pressures on households around the world from the rising cost of living, as well as higher costs of running the business.

"The company has some difficult decisions to make if it wants to improve its profits. One area is to look at return rates. For years, customers have treated ASOS and many other fast fashion retailers as a two-stage transaction. Buy multiple sizes of the same items and send back the ones that don’t fit. This is costing ASOS a lot of money and the only way to discourage this activity is to start charging customers to return products. Although this action risks dampening demand, more retailers are going down this path and so it wouldn’t be out of the ordinary."

"For years, customers have treated ASOS and many other fast fashion retailers as a two-stage transaction. Buy multiple sizes of the same items and send back the ones that don’t fit. This is costing ASOS a lot of money and the only way to discourage this activity is to start charging customers to return products."

Freetrade analyst Gemma Boothroyd:
"The firm’s latest results are up against a very strong lockdown-ridden base year comparable. So single-digit growth shouldn’t sound the alarm bells. Though it’s hard to ignore the firm’s massive turn from profit to a jarring loss.

"They’ve been holding on tight for what’s turned out to be a pretty bumpy ride - especially as its share price tanked over the past year. After getting a bit of a skip in its step during lockdowns, ASOS’s share price has crumbled well below its pre-pandemic levels.

"ASOS has changed its tune, describing the road ahead as more challenging than anticipated. It’s off to a shakier start than expected after suspending sales in Russia, which will likely hit full-year revenue growth by 2%. That should be a loss that ASOS can absorb, but given its current landscape, it sounds a lot more like another hurdle in its path."

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