The share price chart tells the story: more than two decades after the birth of Asos, the pioneer of online fast fashion, we are still waiting to discover if a grownup, reliably profitable company will emerge.
Victory was glimpsed a few times, most recently during the Covid pandemic, when other people’s physical shops were closed and the online-only Asos produced an annual profit of almost £200m.
But every high has been followed by a bigger low, usually caused by troublesome warehouses or unsold stock, or a combination of the two. Last year’s loss was almost £300m, the group reported on Wednesday.
It has been a monumental exercise in generating huge revenues – £3.5bn last year, albeit down 11% – for no lasting reward. The 365p share price, lower by 8% on the day, was first seen in 2009, when annual revenues were a 20th of the current level.
The company is now worth just £430m and had net debt of £320m at the last count. Volatile does not get close to capturing Asos’s stock market life.
The only vaguely optimistic note is that José Antonio Ramos Calamonte, the chief executive summoned a year ago to fix the mess, sounds the right nuts-and-bolts operative for the job.
He has spent the past year cutting costs and addressing the absolute priority of reducing the overhang of old stock, a legacy of past management’s rash buying decisions during the pandemic.
Between 2018 and 2022, Asos’s revenues rose 30% but stock levels doubled, which is a killer for a low-margin model that relies on turning over the inventory approximately every 100 days.
Even now, Asos says the “final cleansing of stock will remain a drag on sales growth and profitability” through the current financial year. On the plus side, the company should have breathing space to concentrate on normal activities, like sharpening the fashion offer. On the other hand, the opposition is not standing still.
The Chinese retailer Shein seems to have limitless cash to throw at expansion, and secondhand marketplaces such as Depop are now in Asos’s twentysomething market. Meanwhile, the likes of Zara, H&M and Next (the model of consistency, as its trading update on Wednesday demonstrated yet again) sit in the middle of the market and have integrated store and online operations that clearly appeal to punters who want to see the goods up-close or prefer to process their returns in a shop.
Looking beyond another hard year, Calamonte predicts a return to profitable growth and pre-Covid margins of 6% in 2024-25. That is before nasties such interest costs – a thumping £50m last year – but 6% would clearly be good if it happens. At this stage, though, the stock market has clearly decided to believe it when it sees it. It is a reasonable view.
Calamonte’s mantra of “operational excellence and efficient capital allocation” is obviously the correct one, but Asos will not shed its reputation for being accident-prone easily. Even two decades into the online revolution, this looks a long-haul investment story.
