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FTSE 250: Asos profits plummet 89% as shoppers cut spending

LONDON, ENGLAND - SEPTEMBER 16: Joanna Chimonides attends the launch party celebrating Love Island star Ovie Soko's partnership with ASOS on September 16, 2019 in London, England. (Photo by David M. Benett/Dave Benett/Getty Images for ASOS)
Joanna Chimonides at an Asos launch party. Asos was once a darling of the stock market but its share price has plunged after the pandemic. Photo: Dave Benett/Getty

Asos (ASC.L) has posted an 89% drop in 2021-22 profits and forecast a first half loss in its new financial year, as consumers cut spending during the cost of living crisis.

The online fashion retailer posted a pre-tax loss of £32m ($28m) from a profit of £177m and said trading at the start of the new fiscal year had been volatile.

On an adjusted basis profits fell to £22m in the 12 months to August 31 2022, in line with recently lowered guidance and down from £193.6m last year when consumers turned to online purchases during COVID lockdowns.

Read more: UK homebuilder Bellway warns of slowing demand amid soaring mortgage rates

The company blamed significant volatility in the macroeconomic environment but Asos is not only struggling with a tough consumer climate as it faces troubles with its own finances.

The fast fashion firm has been in talks with lenders over a £350m loan deal as it strives for more flexibility in uncertain financial times.

New chief executive José Antonio Ramos Calamonte said there was a “significant need to improve the way we operate to unlock the opportunity of our global reach”.

“In recent years, the quest for growth has resulted in ASOS becoming excessively capital intensive, too complex and overstretched globally, which has resulted in a lack of meaningful growth and scale in its key international markets of the US, France and Germany.”

ASOS and other online fashion retailers were early pandemic winners as locked-down consumers shopped online but they have struggled as people returned to stores. Its shares are down 90% this year.

Richard Hunter, head of markets at Interactive Investor, said: “ASOS has capped off a torrid year by swinging to a pre-tax loss as retail realities bite.

Read more: FTSE 100: Mondi profits jump amid higher selling prices

“Although revenues increased by 1% overall, this is one of few key metrics which the company will want to remember. A pre-tax loss of £32m is far lower than the company’s own estimates and compares to a profit of £177m in the previous year. Gross margin has declined from 45.4% to 43.6%, while net debt stands at £153m as compared to a net cash position of £200m a year earlier.”

Watch: UK fashion retailer ASOS warns of hit to sales