ASOSshares soared today as new boss José Antonio Ramos Calamonte convinced investors the company was on the right track to bounce back from its recent troubles despite a 14% slump in sales.
The online retailer lost £290.9 million last year but launched a new plan to cut costs by stocking less clothes. This, the firm said, meant a decline in sales was expected as it puts “more stock than [it] would like” on clearance to get rid of clothes it hadn’t been able to sell at full price.
In total, ASOS plans to almost halve the value of clothes it holds from around £1.1 billion in 2020 to £600 million today.
Ramos Calamonte laid out why he felt the strategy was “the right plan”. He said the old approach to inventory had created major problems: “The build-up of stock based on ASOS' view of e-commerce as having an 'infinite aisle' was exacerbated by the perfect storm created by unpredictable demand and global supply chain disruption.
“While it's a frustrating issue to solve, we have a clear plan to fix things.”
Sales came to £858.9 million in the three months to the end of May, with £591.3 million of those in the UK. But while those figures were down, the company returned to profit as it cut £200 million in costs.
The firm also took out a new £275 million loan, which Ramos Calamonte pointed out did not come with strings related to profitability attached.
Shares jumped by 41.4p to 369.3p, though that’s still less than a tenth of ASOS’ share price two years ago.
Chris Beauchamp, chief market analyst at IG Group, said: “It’s no surprise to see ASOS shares surging today given the rosy outlook, but this is more short-covering than anything else.
“The balance of risks for investors was certainly skewed to the upside, but ASOS has a long way to go to regain market confidence.
“Predicting a better performance in coming quarters is one thing, delivering quite another.”
Julie Palmer, partner at Begbies Traynor, said: “Cut through all Asos management’s talk about its strategy for slashing costs, reducing the piles of unsold clothes that clog up its warehouses, new financing schemes and hopes to cut debt, and there’s one key question: are customers buying enough for it to make money?
“The company says they are with a return to profit this quarter despite the continuing sales slump since the boom times during and after lockdowns.
“But with inflation squeezing ever harder, the challenge will be maintaining this with increasing numbers of shoppers facing a tough choice between putting clothes on their backs and food on the table.”
Mike Ashley’s Frasers Group upped its stake in ASOS above 10% today, a move that could fuel takeover speculation.
Fellow fast fashion retailer H&M also announced its results today, with sales up 6% to SEK57.6 billion (4.24 billion) in the same three-month period. Shares are up 6.2%.
