Asos to overhaul business model after profit slump

(Source: Reuters )

Asos, the one-time British poster child for the shift to online fashion retailing, will overhaul its business model after the economic crunch and a string of operational problems hammered its profits.

New CEO José Antonio Ramos Calamonte said that while Asos’s core business in the UK remained strong, returns from its international operations, particularly from the United States, were unsatisfactory and needed to be addressed.

He vowed to re-vamp Asos’s “inefficient” supply chain, find a way to re-engage its 20-something customers, better leverage its data, cut costs and refresh its culture.

“The plan over the next 12 months is going to be focusing on simplifying the business and making it more resilient and more flexible,” Ramos Calamonte told Reuters.

“We want to be able to deliver more relevant stock and faster to consumers.”

Shares in Asos were up 8.8 per cent at 1138 GMT, as investors welcomed the shift and a new deal with lenders, paring 2022 losses to 78 per cent.

Asos and rival Boohoo grew rapidly as young customers around the world snapped up their fast fashions, and demand surged again during the coronavirus pandemic when high street rivals were closed.

But supply chain issues, increased competition and the sharp downturn in the economy have badly affected its business model. The perennial problem of managing customer returns has also weighed on the business.

Ramos Calamonte said he was committed to free returns.

Boohoo, which does charge for returns, warned on the outlook last month.

ASOS made adjusted pretax profit of 22 million pounds (US$24.9 million) in the year to Aug. 31, in line with guidance that was lowered last month and down from the pandemic boosted 193.6 million pounds made in 2020-21.

It forecast a first half loss as it cuts prices to clear old stock, requiring a non-cash write-off of up to 130 million pounds. Some 40 million pounds of other restructuring charges will also be booked.

In the second half, ASOS will begin to operate with lower stock levels as lead times on orders and deliveries are reduced. It would also benefit from reduced freight rates and cost cuts.

ASOS did not give profit guidance for the full year. Prior to the update, analysts on average were forecasting an adjusted pretax profit of 61 million pounds.

It said while trading was volatile, September had showed a slight improvement relative to August.

Ramos Calamonte said that with cash and facilities of more than 650 million pounds, ASOS had ample room to manoeuvre and did not need another equity raise.

Capital expenditure for 2022-23 was guided at 175-200 million pounds, down from 200-250 million pounds, with the phasing of automation projects under review.

The CEO said he was not concerned by the threat of a takeover bid and did not obsess over the share price.

  • Reporting by James Davey; editing by Sarah Young, Kate Holton, Kirsten Donovan, of Reuters.

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