The new boss of Asos was pushing his luck in describing the full-year performance – a collapse in operating profits from £190m to minus £10m – as “resilient”, but then one realised he was referring only to the UK, which has suddenly acquired the label “core operation”. Implication: the rest of the world was a disaster zone.
Indeed it was, though José Antonio Ramos Calamonte spared shareholders the details of how poor returns on capital have been outside the UK, particularly in the US. “Disappointing,” he said, without putting a number on it. Assume shocking.
Since Asos’s strategy for the past decade has been an attempt to become the world’s top fashion site for twentysomethings, this is more than a small problem. International revenues comprise 55% of the whole, so it’s a bit late for regrets. But long-term shareholders would be immeasurably richer if Asos had stuck to the UK. Huge warehouses were built expensively in Atlanta and Berlin a few years ago to solve previous supply-chain snags but seem only to have created new headaches.
Calamonte’s survey of the landscape is worth digesting for its bluntness. “In recent years, the quest for growth has resulted in Asos becoming excessively capital intensive, too complex and overstretched globally, which has resulted in a lack of meaningful growth and scale in its key international markets of the US, France and Germany,” he said.
Compare that frank admission with what Asos was telling its investors as recently as 18 months ago when Nick Beighton was the chief executive and Adam Crozier the chair. The corporate brag around the numbers in April 2021 trumpeted “exceptional executional delivery with continued discipline and strong operational grip”.
A generous interpretation says Asos mistook the whoosh of the demand from locked-down punters during Covid as the product of its brilliance. The reality, it now seems, is that basic building blocks weren’t put in place. Calamonte’s list of items to review covered the waterfront – “the operating model, marketing investment, capital and resource allocation”.
The share price has plunged from £55 to 550p since that April 2021 report and the quest for growth hasn’t even succeeded lately in its own terms. Asos, which used to grow at 25% a year as a matter of course, produced 1% in the last 12 months. The suddenness of the slowdown, one assumes, is the one reason why the company is stuck with £100m-plus of old stock that will be written off. The only morsel of consolation is that Americans still seem to like Topshop, a brand Asos rescued from the wreckage of Sir Philip Green’s empire. It’s not much to cling to.
Asos itself is 20 years old as a public company and has annual revenues of almost £4bn, so this can’t be called a case of a youthful startup suffering growing pains. Rather, it’s a question of proving that the fiddly logistical business of online-only fashion can travel across borders, or just prosper outside a pandemic.
Calamonte joined as chief commercial officer in January 2021, recently enough not to be tarred with the ra-ra over-optimism of the past. He brings useful retailing experience from continental Europe, and his dismissal of his predecessors’ target of £7bn of annual revenues for Asos within two or three years was enjoyably casual – “probably not so likely”. On paper, he has the credentials to stop the rot.
But he’s also trying to reinvent Asos’s international operations in the midst of an economic storm. Tough gig.
Cunliffe calms pension fund concerns
Sir Jon Cunliffe should appear in front of the Treasury select committee more often. While the Bank of England’s deputy governor in charge of financial stability was giving evidence, the yield on the 30-year gilt fell from 4.15% to a fraction under 4%, which is almost back to the level before former chancellor Kwasi Kwarteng let rip.
Cunliffe’s soothing words about how pension funds could now withstand a 200-basis point rise in yields – in other words, to 6% from current levels – probably helped. Threadneedle Street should still have spotted several years ago the dangers lurking with LDI (liability-driven investment) strategies, but the Bank’s short-term emergency response can be called a success. The pension funds did as they were told and got their act together.
Cunliffe should also reappear for lines like this – an explanation of why the Bank didn’t get a Treasury briefing on the contents of Kwarteng’s disastrous mini-budget because it wasn’t a full budget. “It was a different sort of event, if I can put it like that,” he said. Very droll.
