Asos has dived £291m into the red after sales slumped in what the online fashion retailer called a “challenging trading backdrop”, with shoppers returning to physical high street stores and cutting spending on non-essentials.
Sales fell by 8%, including a 10% drop in the UK, in the six months to 28 February – far worse than the 3% forecast by the City. The company said it had deliberately shifted away from unprofitable sales and suffered from weak consumer demand and the December postal strikes.
The £291m pre-tax loss, against a £16m loss a year before, came after writing down more than £100m on unwanted stock as Asos focuses on a narrow range of products and tries to update its fashions more quickly.
The company also faced rising costs on labour and warehousing and had to handle a greater number of returned items than during the coronavirus pandemic, as shoppers switched to more fitted items for parties and weddings, such as dresses, rather than the jogging bottoms and hoodies favoured while spending time at home under Covid restrictions.
Asos said it also believed the cost of living crisis was prompting its shoppers to be more cautious and to send back items as they worried about their finances.
Next forecasts drop in spring sales amid cost of living crisis and cold weatherRead more
Asos said sales had continued to slide in March and April and it expected them to fall by at least 10% for the year and to make an underlying profit of no more than £60m.
Andrew Wade, a retail analyst at Jefferies, said Asos now appeared likely to make a pre-tax loss of about £70m for the year to the end of August, well short of the £19m profit anticipated by the City.
“Asos continues to face into significant challenges, with revenue declining more rapidly and net debt higher than anticipated,” Wade said in a note.
José Antonio Ramos Calamonte, the chief executive of Asos, who took over last summer, said half the fall in sales was down to Asos’s own actions, such as limiting discounting and cutting marketing, and the other to changing consumer behaviour.
He said the retailer had faced “some very challenging trading conditions” as inflation on raw materials, labour and warehousing had weighed on profits and forced it to put up prices by about 2%-3%, just as shoppers were feeling the squeeze on their spare cash.
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Calamonte added: “There is certainly a return to offline for some consumers … There is also the impact from the cost of living crisis and an abnormally cold spring in the UK.”
He said Asos had found £100m in cost savings and secured new financing to create “a more sustainably profitable and cash-generative business” and expected to save a further £200m in the second half of its financial year.
The group has cut 35 unprofitable brands from its roster and is looking at ways to reduce the 6% of shoppers whose behaviour has led to a £100m hit to profits because they frequently order discounted items, of which they send back a high proportion.
Asos and fellow online fashion specialists such as Boohoo are experiencing falling sales as shoppers return to the high street. They also face new online rivals, including China’s Shein, and the secondhand marketplaces Depop and Vinted, which are proving popular among teenagers and twentysomethings.
