ASOS released its delayed annual results on Wednesday and talked of the progress that it’s making, although its upbeat stance couldn’t disguise the fact that there were many difficult figures in there.
Looking first at the headline numbers, the company said the year to the start of September saw adjusted group revenue of £3.538 billion, down from £3.936 billion a year earlier. That was an 11% fall on a constant currency basis.
While the adjusted gross margin rose to 44.2% from 43.6%, adjusted EBITDA was down to £124.5 million from £183.9 million and adjusted EBIT was down to a loss of £29 million from a profit of £44.1 million in the previous period. The adjusted loss before tax was £70.3 million compared to a £22 million profit this time last year.
But on a reported rather than adjusted basis, the loss before tax was £296.7 million, much wider than a loss of £31.9 million previously.
Clearly, the company isn’t exactly in good health at present although the figures were in line with the guidance that it had previously issued, and it said that adjusted EBIT in the second half was up more than 100%. Meanwhile free cash flow rose more than £125 million, reflecting “material improvements to core profitability and strong inventory management”.
The company continued its Driving Change strategy during the period, reducing stock levels by 30%, increasing profit per order by over 30%, refinancing the balance sheet and refreshing the leadership team “to bring new energy and expertise”.
It also hailed “significant operational progress” with 84% of around £1.1 billion of old stock that was carried forward having been cleared through in the year. Stock operating under the new commercial model in H2 also “delivered stronger sell-through”, while the Test & React pilot for high-fashion product ramped up. The Partner Fulfils programme has also been scaled to 33 brands across six markets, and technology is now in place to accelerate the rollout and provide ASOS Fulfilment Services on DTC product.
The retailer said that during the year active customer numbers dropped 9% to 23.3 million although average basket value rose 7% to £40.33. Average value on a constant currency basis was up 5% at £39.65. But average order frequency fell by 6% and the total number of shipped orders was down 15%. Total visits also dropped 8% and conversion fell from 3.4% to 3.1%.
But some of those drops weren’t quite the bad news they looked as the company said it “continued to churn lower-quality customers acquired during the pandemic and employed more discipline in our marketing approach in response to weaker demand. Our profitability actions also included remedial action to improve profitability among loss-making customer segments, driving higher levels of churn. Premier customers declined 11%, reflecting increases to subscription prices and the introduction or increase of minimum order thresholds for free delivery.”
Looking at individual markets, the company said total sales in the UK fell 12% and were down 13% on a like-for-like basis. In the EU total sales dropped 1% or 4% on a constant currency basis while in the US there was a 6% decline in total sales, although they were down 14% on a constant currency basis, while visits were down 5%, and in the rest of the world excluding Russia, total sales fell 15%, or 16% in constant currency.
As for the current financial year, the company said that “with strong foundations in place, FY24 will prioritise a shift ‘Back to Fashion’, leveraging ASOS’s strengths to offer the best and most relevant product, with an exciting and seamless customer experience geared around fashion and excitement”.
This will be supported by the aforementioned investment in marketing “while maintaining an obsession with operational excellence and disciplined capital allocation”.
That said, the “final cleansing of stock over FY24 will remain a drag on sales growth and profitability through the year”. But it expects to exit FY24 with most stock operating on the new commercial model and inventory restored to pre-Covid levels, Test & React scaled to over 10% of own brand, and 200% growth in Partner Fulfils.
ASOS is forecasting a sales decline of 5% to 15% in FY24, with “positive adjusted EBITDA and material cash generation driven by stock sell-through, further reducing net debt”. And in FY25, it expects to return to growth with the EBITDA margin around pre-Covid levels.
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