By Scott Kanowsky
Investing.com -- Shares in ASOS PLC (LON:ASOS) surged on Wednesday after the online fashion retailer unveiled an uptick in performance to begin its 2023 fiscal year and laid out a timeframe to return to positive cash generation despite soaring inflation weighing on consumer spending.
The U.K.-based group said trading in September showed a "slight improvement" compared to the previous month. But it warned that it remained difficult to predict how customer demand will evolve due to persistent macroeconomic volatility.
In Britain, a key market for ASOS, apparel sales are expected to decline over the next 12 months, the firm warned. However, it was still "confident" that it will be able to take market share, citing the effect of a plan to overhaul its approach to merchandising and buying, while also reducing expenses by fixing supply chain inefficiencies.
"ASOS expects [...] the combination of lower freight costs [...], the measures taken in support of the new commercial model and a lighter cost structure to more than offset the impact of both inflationary headwinds in ASOS' cost base and expected cost of elevated return rates over the next 12 months," it said in a statement released in its annual earnings report.
ASOS flagged that it will drop to a loss in the first half of its 2023 trading, citing a non-cash write-off of £100M - £130M linked to an effort to "right-size" its stock portfolio.
It added that the impact of these broader corporate changes will not be registered until the last six months of the year, when the business is seen returning to positive cash flow and bringing capital expenditures down to between £175M - £200M.
The announcements come as ASOS, which had seen a jump in demand during the pandemic, has struggled following the lifting of Covid-era restrictions.
ASOS reported an 89% drop in its adjusted pre-tax profit in its 2022 fiscal year to £22M following lower-than-anticipated second-half growth. However, this result was still in line with the company's guidance range of £20M - £60M.
When including adjusting items, ASOS swung to a reported loss of £31.9M.
"While ASOS had expected an acceleration in revenue growth against weaker comparatives, inflationary pressures on consumers increased markedly as the year progressed, and impacted consumers' confidence and discretionary income," the company said.
Meanwhile, inventory levels also expanded due to a spike in return rates and the decision to withdraw its operations in Russia in March following the outbreak of the war in Ukraine.
Shares in ASOS have fallen by more than 80% over the past one-year period.