Asos’s decision to reduce inventory and offer excessive discounts while consumers are on a tight budget has hurt profits in the short-term. However, the online retailer is confident that it will return to profitability in the second and third quarters.
Fast-fashion retailer Asos reported a £290.9million loss before taxes for the six-month period ending in February. This is a larger loss than the P£15.8million loss from the previous year. Asos’s loss included a £128m stock write-off. It also wrote off the value of warehouses, and it incurred costs due to its head office staff being made redundant.
Asos’ revenue, which includes Topshop, Miss Selfridge and other brands, dropped by 8 percent to £1.8 billion, as online shopping reversed in part. However, the retailer stated that this was still “significantly higher” than it was before the pandemic. UK sales fell by 10%, Europe was flat and the US saw a 7% drop. The rest of the globe was down by 13%.
The new boss’s plan to reduce discounting in favor of full-priced items and increase the number of full-priced products was one factor that hurt revenue. Another was “a challenging trading background”.
Asos has launched a £300-million cost-savings plan for the 12-month period ending August 2023. The company is led by Jose Antonio Ramos Calamonte. The measures included removing 35 non-profitable brands from Asos’ website, cutting office space, and closing three warehouses including one in UK. This has resulted in a number one-off expenses.
Calamonte stated: “While these changes may have affected short-term growth in sales, there are numerous reasons for optimism as we move through the second half year. In the face of headwinds of considerable magnitude, we are improving our gross-margin run rate. We are also beginning to see the positive effects of a repositioned inventory profile.
Asos predicted a “low-double-digit” decrease in second half sales, but core earnings between PS40 and PS60 million. This reflects its focus on profitable sale, assuming that the trading environment does not improve.
Asos, like many other online retailers, flourished under the pandemic lockdown. According to Nick Beighton its former boss, Asos benefited from a “not going outside” syndrome. Supply chain problems, the cost of living crisis, and competition from Chinese fast-fashion retailer Shein have all impacted its business model since then.
Analysts fear that Asos may have to raise more equity. Early morning trading saw shares down 6 per cent or 39p to 596p.
It was once a stock market darling and briefly valued at more than PS6 billion in 2018, surpassing rivals Marks & Spencer & Next. The shares have fallen 90 percent since then. Next shares have increased by 30% over the same time period.