ONLINE fashion retailer Asos saw its shares soar as it returned to profit in the three months to the end of May amid a grim economic backdrop and a squeeze on consumer spending.

Investors seemed convinced by chief executive José Antonio Ramos Calamonte’s insistence that the ailing retailer is recovering from its recent poor performance although it still reported an expected 14% slump in sales.

Asos saw sales of £858.9 million in the third quarter – with the UK accounting for £591.3m of that figure. The retailer attributed its return to profit to a £200m cost-cutting exercise. The company also reported that earnings before interest and tax (EBIT) for the quarter ended May 31 increased by more than £20m year on year, allowing it to meet its target of delivering an adjusted EBIT guidance of £40-£60m in the second half of its year.

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It further revealed that it strengthened its balance sheet through a new, long-term £275m financing facility and raised about £80m of funds by issuing new equity shares. “The new capital structure provides Asos with increased resilience and significant flexibility, free of any profit-based covenants,” the retailer noted.

“It is fully aligned with Asos’s shift to its new commercial model, which includes reducing inventory, faster clearance of unsold stock, and improving stock turn.”

The online retailer, which positions itself as is a “destination for fashion-loving 20-somethings around the world”, offers about 60,000 products sourced from nearly 900 global and local third-party brands alongside a mix of fashion-led own-brand labels, including Asos Design, Reclaimed Vintage, Topshop, and Miss Selfridge.

Asos, which lost £290.9m last year but embarked on its plan to cut costs by stocking fewer clothes, pledged to press on with its “Driving Change” strategy while sales remain under pressure. Mr Ramos Calamonte unveiled an overhaul of the ecommerce giant’s business model last October after a string of operational problems and slump in profits due to inflation.

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He said: “We are delivering on our plan to turn the business around: to right-size our stock; to generate cash; to reduce our net debt; and to structurally improve our profitability. I am confident in the direction we are going – we have restored profitability in the period and made good progress in clearing through our inventory to generate cash.”

He noted that Asos retains “ample balance-sheet flexibility” and reiterated the retailer’s expectations for “improved profitability, cash generation and reduction in net debt” in the second half and full year.

Some analysts were sceptical. At AJ Bell, investment director Russ Mould said that the retailer’s “shrink to be better” approach and a return to profitability would suggest its recovery efforts are paying off. But he warned: “Asos has been sitting on significant amounts of stock that it needs to clear before inventory levels fall to desired levels.

“A shift in the market environment, partly driven by cost pressures and a revival in consumers going to physical shops, has meant online retailers like Asos have had to rethink their model and focus on quality of sales over quantity.”

Neil Shah at Edison Group described the trading update as “mixed”, noting it “reflects unfavourable external circumstances mitigated by internal operational changes”. He said: “The returned profitability doesn’t signal a return in popularity for online clothes shopping Instead, it reflects strategic actions on the part of Asos. Revenue continued to fall, as did sales, showing that the group still feels the effects of a post-pandemic return to in-person shopping.”

It emerged yesterday that Mike Ashley’s Frasers Group, run by his son-in-law Michael Murray, has grown its stake in Asos to 10.5%. Frasers has been building its stake over the past year. Asos’s largest investor is Danish billionaire Anders Holch Povlsen’s retail conglomerate Bestseller.

Shares closed at 370p, up from 41p.