Asos’ losses widen as shoppers cut back and return more parcels
Asos shares fall 10% as online retailer’s losses widen after shoppers cut back and return more packs
- Asos reported a £291 million pre-tax loss for the six months to the end of February
- Sales fell 8% to £1.8 billion; Second half sales forecast down by ‘low double digit’
- Sales in the UK were down 10% compared to last year, while Europe remained flat
Shares of Asos plunged 10 percent after the online retailer revealed mounting losses due to the cost of a major restructuring and weaker sales.
The company was also hit by an increase in customers returning more packages, while also witnessing a trend of customers choosing to return to physical stores.
However, Asos said this was ‘short-term behaviour’, adding that it was confident it would return to profits in the second half, despite expecting sales to continue to fall in the coming months.
Declining sales: Asos has been hit by customers returning more packages and said some customers chose to return to brick-and-mortar stores amid the cost of living crisis
Asos posted a reported pre-tax loss of £291 million for the six months to the end of February, compared to a loss of £15.8 million a year earlier.
The reported loss included a £128 million write-down on shares, £49 million of property impairment charges and charges related to head office redundancies.
Excluding these exceptional items, the adjusted pre-tax loss was lower at £87.4m, compared to the profit of £14.8m a year ago, as total sales fell 8% to £1.8bn.
Sales in the UK were down 10 percent compared to last year, while Europe remained stable, sales in the US fell 7 percent and sales in the rest of the world fell 12 percent.
The fast-fashion retailer is forecasting a low double digit drop in sales in the second half, but is making a core profit of between £40m and £60m as it continues its turnaround strategy.
Asos launched a major restructuring in October, closing certain warehouses, axing unprofitable brands and significantly cutting promotional and marketing spend, which Asos says would contribute to a £300m benefit for the current financial year.
Chief executive, José Antonio Ramos Calamonte, said the group had achieved £100 million in profit optimization and cost savings so far, despite short-term sales suffering as a result.
“Our focus is on improving our core profitability, prioritizing order economy over sales growth and I am pleased with the strategic and rapid operational progress the company has made in the first half of the fiscal year against some very challenging market conditions,” he told shareholders.
While some of these changes have impacted revenue growth in the near term, there are many reasons for optimism as we move into the second half of the year.
“I am confident that we will return to sustainable profit and cash generation in the second half of the year and beyond.”
Asos stocks fell 10 percent to 571.8p in morning trading on Wednesday. They have lost about 57 percent of their value in the past year.
Stocks are down 87 percent over a two-year period and 90 percent over the last five years.
Richard Hunter, Head of Markets at Interactive Investor said, “There is little doubt that in a tough retail environment there is never a perfect time to make a transformation of this magnitude.
“Still, the change was necessary and the group has arrows to its bow that could prove to be another savior.”
Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, said the turnaround plan showed “first signs of success.”
He said: ‘Asos remains confident in making a profit in the second half despite challenging market conditions, while cash generation at least appears to be on an improving trajectory. But this comes at the expense of short-term sales.
“The problem Asos faces is that cost cutting can only go so far. In the long run, Asos will have to get its sales in the right direction. And to do that, it must find a way to deliver brilliant service to its customers, at the right margins. That battle has only just begun.”