The British online retailer ASOS PLC (GB:ASC) today reported that its operating profits for the full year are expected to be at the lower end of the guidance range, despite a slump in its sales. The company announced its Q4 and full-year numbers for FY23 in its trading update today, ahead of its FY23 results on October 25, 2023.
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The profits reflect the favorable outcomes of its turnaround plan, which was started in October 2022, in response to the economic challenges and a series of operational issues that negatively impacted its profits and share prices. The plan included a significant revamp of its business model and a focus on profits through cost-cutting and better inventory management.
ASOS is a prominent British online retail brand known for its diverse selection of clothing, footwear, and cosmetics, primarily catering to a youthful global audience.
Let’s take a look at some of the numbers.
Trading Update
The company’s sales declined by 15% on a year-over-year basis in the fourth quarter. The company experienced a robust beginning to the period, but its performance weakened in July and August, coinciding with a decline in the UK clothing market. However, the company still managed to deliver a profitable Q4, driven by its turnaround initiatives. The company has achieved £300 million in profit improvement and cost savings, meeting the FY23 target outlined in its turnaround plan. This accomplishment has boosted order profitability by over 35% year-over-year.
The adjusted gross margins for the second half increased by 150 bps year-on-year, falling short of the earlier guidance of a 200 basis point improvement. This was attributed to the investment in promotional activities aimed at reducing inventory levels. The company now anticipates its EBIT to be approximately at the lower end of the provided range of £40 million to £60 million, while free cash inflow in the second half is now projected to be around £60 million.
Is ASOS a Buy or Sell?
The company’s stock, which was once a pandemic winner, has been grappling with declining sales in the wake of a return to in-person shopping along with the supply chain disruptions led by the conflict in Ukraine. In the last 12 months, the stock has lost 38% of its value in trading.
Following the update, analyst Michael Benedict from Berenberg Bank reiterated his Buy rating on the stock, predicting a huge upside of 98% in the share price.
Moreover, two other analysts from J.P. Morgan and Jefferies confirmed their Hold ratings on the stock with a forecast of a 30% jump in the price.
On TipRanks, ASC stock has received a Hold rating based on one Buy and four Hold recommendations. The ASOS share price target is 543p, which is 42% above the current trading levels.
