Yahoo Finance Asos launches survival plan as shoppers cut back
Asos has laid out survival plans as it revealed a slump in spending among shoppers will force it to write off the value of £130m worth of stock.
The online fashion retailer, which has seen its shares slump by as much as 80pc in the past year, has launched a major cost-cutting push in a battle to stem losses.
Under plans laid out by chief executive Jose Antonio Ramos Calamonte, who took over in June, Asos will cut the amount of items it stocks, rein in spending, and slow investment in its robotic warehouses in the US which it said had become too complex and expensive.
Asos admitted that it had also become too reliant on promotions, and was planning to cut back on how many sales it will do, which means a change in how it offloads extra stock. It said all options were on the table, including potentially opening a store on the high street or selling its products in other retailers such as TK Maxx.
It will be taking a one-off hit of between £100m and £130m on old stock early next year and will continue to record losses during the first half of the year.
Despite shares in the company jumping by more than 12pc on the announcement, analysts at Liberum said bosses were "fish out of water" and called their presentation "underwhelming".
They said: "It left us with many questions unanswered, the strategy appeared under baked and consequently, the management team sounded underprepared."
It comes ahead of what is expected to be a difficult Christmas for many retailers. Soaring inflation has prompted many households to cut back on purchases, with recent figures from Retail Economics suggesting that shoppers will spend £4.4bn less on non-essentials in the run-up to Christmas compared to last year.
Clothing and footwear retailers will be hit the hardest, the analysis showed, with a quarter of consumers reining in how much they are spending on apparel.
Asos said it was expecting the clothing market to decline over the next year, and was already seeing a higher level of returns among customers as cost-of-living pressures ramp up. Increasingly, Asos said it is trying to get customers to return items quicker, so it can make them available for other shoppers to purchase on its website.
The drive to cut back on promotions comes after adjusted profit margins slipped from 5.3pc to 1.1pc in its latest financial year. Asos reported a £32m pre-tax loss for the year to August 31, compared with profits of £177m a year earlier, while revenues edged up 1pc to £3.9bn. Its debt pile totalled £153m, compared with £200m of cash a year earlier.
The update follows reports that Asos was facing a cash squeeze as it raced to agree new lending terms with banks. On Wednesday, it said it had agreed an amendment to its £350m revolving credit facility.
Mr Calamonte said: “Against the backdrop of an incredibly challenging economic environment, this unique combination has enabled our business to deliver a resilient performance this financial year in the UK – but I know we as a company can achieve far more.”
