ASOS has returned to profitability on the back of a robust cost-cutting strategy which has seen the online fashion retailer offload stock and reduce its net debt.
The business model implemented by chief executive José Antonio Ramos Calamonte appears to be working – although as expected, the firm reported a 14% slump in sales.
Achieving sales of £858.9 million in the third quarter – the three months to the end of May – is still positive, however, and reflects the more general uplift in retail sales including in Scotland, where total sales increased by 10.9% year-on-year in May, rising above both the three and 12-month average, figures from the Scottish Retail Consortium (SRC) and KPMG revealed this week.
Inflation cancels out growth in Scotland's shopping sector
The online retailer, which positions itself as a “destination for fashion-loving 20-somethings around the world”, lost £290.9m last year but embarked on a plan to cut costs by stocking fewer clothes. It has pledged to press on with this “Driving Change” cost-cutting strategy, implemented by Mr Ramos Calamonte, while sales remain under pressure amid the grim economic backdrop and a squeeze on consumer spending.
For Asos, the question now must be: how can we keeping customers buying. Reducing stock levels and cutting costs are all good and well – but not if consumers are worrying about soaring household bills and prioritise the weekly supermarket shop over new clothes.
Neil Shah at Edison Group made a comment that resonates, suggesting that Asos’s third-quarter performance “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.”
José Antonio Ramos Calamonte’s insistence the ailing retailer is recovering seemed to convince investors that his strategy is proving fruitful. However, Mike Ashley’s Frasers Group, run by his son-in-law Michael Murray, has grown its stake in Asos to 10.5%, it emerged yesterday. Frasers has been building its stake in Asos, whose largest investor is Danish billionaire Anders Holch Povlsen’s retail conglomerate Bestseller, over the past year.
So, while Asos is making all the right noises just now and moving in the right direction, the retailer needs to keep those young consumers who drive the fast-fashion industry on side.
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