ASOS shares drop as it responds to reports on financial restructuring

ASOS shares dropped by more than 10% on early trading this morning after the online young fashion giant responded to media reports that it was looking to carry out a financial restructure.

According to Sky News, ASOS has appointed banks behind its £350m revolving credit facility to seek amendments to the arrangement, while its lenders including Barclays, HSBC and Lloyds Banking Group had lined up advisers at AlixPartners and law firm Clifford Chance to keep them appraised of developments.

In a short statement responding to the story, ASOS said: "ASOS notes recent media reporting and confirms that it is in the final stages of agreeing an amendment to the future financial covenants in its Revolving Credit Facility, which matures in July 2024. This action will give ASOS significantly increased financial flexibility, against the uncertain economic backdrop. ASOS retains a strong liquidity position and this is a prudent step in the current environment."

At the time of writing shares had dropped by more than 10.5% to 475.6p as the market responded to the story and statement. A year ago shares were trading 2,540p.

It is understood that ASOS is close to securing the amendment to the credit facility but it was also reported over the weekend that credit insurer Allianz Trade, formerly Euler Hermes, has reduced its insurance cover for suppliers to ASOS by more than half. This could mean that suppliers will demand payment upfront for goods putting pressure on the company's cashflow.

However, ASOS said the credit insurance cut was not new and had taken place at the end of August. It told The Sunday Times that no adverse affects on its trading relationship with suppliers had occurred as a result.

Like many etailers, who experienced a boom in the pandemic, ASOS has been hit by the cost of living crisis, which has dampened demand and led to a surge in returns. 

Last month the company cautioned on profits for the coming financial year saying they were now anticipated to be “around the bottom end of company guidance” due to the slowdown in activity. It told shareholders it is due to report sales growth, at constant currency, of around 2% for the year.

The developments pose a challenge for new CEO José Antonio Ramos Calamonte who was promoted from chief commercial officer to CEO in June, replacing Nick Beighton (who is now CEO at luxury retailer MATCHESFASHION.com). Ramos Calamonte's CV takes in stints at high profile retailers including Zara wonder Inditex, Esprit and Carrefour Spain, having started his career at McKinsey. Another former Inditex executive, Elena Martínez Ortiz, has joined ASOS as design director for womenswear, having previously been with Inditex-owned Stradivarius.