TIDMASC
RNS Number : 5967N
ASOS PLC
26 September 2023
26 September 2023
ASOS plc (the "Company")
Global Online Fashion Destination
Trading statement for the period ended 3 September 2023
Reducing inventory, improving profitability and generating
cash
Summary unaudited financial results
Period to 3 September 2023 53 weeks to 3 September
(P4) 2023 (FY23)
CCY change CCY change
(adjusted Reported (adjusted Reported change
& like-for-like) CCY(1) change & like-for-like) CCY(1)
GBPm (1,2,3,4) change (1,2,3,4) change
------------------- -------- ----------- ------------------- -------- ------------------
UK total
sales (16%) (13%) (13%) (13%) (12%) (12%)
EU total
sales (7%) (4%) (4%) (4%) (3%) (1%)
US total
sales (19%) (16%) (19%) (14%) (13%) (6%)
ROW total
sales (28%) (25%) (26%) (16%) (30%) (29%)
----------- ------------------- -------- ------------------
Total group
revenue(5) (15%) (12%) (12%) (11%) (11%) (10%)
------------------- -------- ----------- ------------------- -------- ------------------
Strategic update and post close trading update
The Company has continued to execute on its Driving Change
agenda. The following progress was made during the period:
-- Adjusted H2 EBIT (6) up more than 100% year-on-year ("YoY")
and H2 cashflow improving by c.GBP140m despite double-digit revenue
decline, reflecting material improvements to core profitability and
strong inventory management.
-- Sales declined 15% YoY in P4, in-line with guidance, with a
stronger start to the period followed by weaker performance in July
and August amidst a deterioration in the UK clothing market (7)
.
-- Despite the decline in sales, P4 will be another profitable
quarter. c.GBP300m of profit improvement and cost savings have now
been realised, in-line with the FY23 target set under the Driving
Change agenda, driving order profitability (8) up more than 35%
YoY.
-- Adjusted gross margin(9) up c.150bps YoY in H2 (vs. guidance
up c.200bps), driven primarily by lower freight and duty costs,
partially offset by tactical investment in promotional activity to
prioritise stock reduction in a challenging trading
environment.
-- As such, inventory down c.30% YoY, ahead of guidance,
supporting the transition to the new commercial model in FY24 and
beyond.
-- Pivot to faster stock model on track with c.500 Test &
React options launched on c.2-week lead times, with c.60% of each
product launch selling through in seven days and stock turning c.3x
faster than average.
-- EBIT is expected around the bottom of the guided GBP40m to
GBP60m range, with free cash inflow in H2 now expected to be
c.GBP60m excluding refinancing costs(10) (previously GBP150m),
principally as a result of timing effects that will reverse in
September and October. All other guidance remains unchanged.
-- Cash and undrawn facilities totalling c.GBP430m at year-end,
providing substantial liquidity following the refinancing and
equity raise announced in May 2023.
José Antonio Ramos Calamonte, Chief Executive Officer, said:
"ASOS has delivered on the Driving Change agenda and as a
consequence is a leaner and more resilient business twelve months
after its launch. We have reduced our stock balance by c.30%,
significantly improved the core profitability of the business and
generated cash against a very challenging market backdrop. We
continue to focus on bringing the best fashion and the most
engaging proposition to our customers as we make progress on our
journey to sustainably profitable and cash generative growth."
CEO review
In our P3 trading statement I explained the challenging position
we were in as we entered FY23: we had more stock than we'd like,
our buying processes were too deep and too slow, we lacked
profitability and we had tension in our balance sheet with
earnings-based covenants on our debt. To address these issues, we
refinanced our balance sheet and rebuilt the leadership team. I
also explained that we had begun to pivot to a new commercial model
that puts speed at the heart of everything we do, bringing the most
relevant and exciting fashion to our customers and making our
operations more profitable and more cash generative.
Since then, we have continued to make progress: inventory is now
down ahead of guidance, by c.30% YoY, order profitability is up
over 35% as a result of targeted action to manage our least
profitable customers. Most pleasingly, new product operating under
our refreshed commercial model is performing well and our Test
& React pilot has produced extremely positive results that we
will scale up over the coming months.
At our H1 results in May, we reiterated our priorities for H2,
focused around reducing inventory and improving our core
profitability, and provided guidance for revenue growth, gross
margin, EBIT, inventory and cash for the balance of the year. We
have successfully reduced inventory more than planned while
delivering sales and profit broadly in-line, but cash generation in
the period has lagged, predominantly as a result of timing.
Across many of our markets (but most notably the UK), the hot
weather drove a strong June and a wet July and August produced a
weaker sales result. While the stronger than expected June and
weaker than expected July and August broadly netted out to deliver
sales and EBIT in-line with guidance, the phasing of sales impacted
year-end cashflow. This is due to the immediate reduction in the
cash inflow from our sales and the delayed reduction in the cash
outflow on our costs, best illustrated by the simplified chart
below. We typically receive cash from our sales gross of returns
and sales tax immediately. However, the cash outflow from sales
tax, returns and variable costs associated with those sales
predominantly impact the following two months. As a result,
cashflow was negatively impacted by c.GBP60m as weaker July and
August gross sales coincided with higher sales costs from strong
June trading. This impact will reverse during September and
October.
*For illustrative purposes only. Sales and their associated
variable costs impact the P&L concurrently. In contrast, the
impact of lost gross sales on cashflow is immediate while the
resulting lower variable costs lag.
Progress towards our new commercial model
There are two key stages to our new commercial model -
converting our current stock into cash and then turning our stock
faster on an ongoing basis to make our business model more cash
generative. Over the last year (starting with our GBP130m stock
write-down) we focused the business on selling excess stock and
improving the way we buy stock - buying less on faster lead times
with more flexibility. To achieve this, we have rewritten our
commercial model to focus on speed - this means a better customer
proposition, less inventory risk, higher margins and greater cash
generation.
Despite the difficult trading environment, we have reduced
inventory by c.30% during FY23 which has required higher levels of
discounting in the short-term as well as reducing our intake, which
as I previously shared, has resulted in reduced width and newness,
negatively impacting revenue. This elevated level of discounting is
likely to persist through FY24, and notably through P1, as we seek
to clear last year's Autumn/Winter stock, which is now among our
oldest inventory. We remain on track to return stock to pre-COVID
levels by the end of FY24 (reducing stock below GBP600m), which
will importantly continue to drive down our net debt.
Our newest, high fashion product is selling very well, with a
50% increase in 4-week sell-through since the start of the year.
However, due to our reduced stock intake and seasonally low newness
in July and August, new stock is a low proportion of sales and the
strong performance on new product has therefore not been enough to
offset the challenging discount season for clearance product. In
September, the proportion of our stock which is less than a month
old will have almost doubled from the levels seen in July, which
improves the proposition for our customers .
Over the course of the last year, we have made substantial
progress on initiatives to improve our stock efficiency on an
ongoing basis, and in FY24 we will see these measures ramp up. On
the own-brand side, our Test & React pilot has been a
resounding success. As a reminder, we define Test & React to be
product that moves from initial design to available on site in less
than three weeks. This enables us to react to fashion trends and
produce product we know our customers want. We have now launched
c.500 Test & React options, reducing lead times to around two
weeks and with close to two-thirds of each product run selling
through in the first seven days. When it comes to partner brands,
the technology and team are now in place to enable us to scale up
the number of brands operating on the Partner Fulfils model in the
next twelve months, providing additional width and depth to our
assortment while simultaneously reducing inventory risk and
enabling us to better curate our local product offering in
international markets.
These initiatives will be transformative for our customer
proposition and for our ability to generate profit and cash. There
is still a lot for us to learn, but we have an experienced and
dedicated team. To support this transformation, I have appointed
Elena Martínez Ortiz as Senior Product Director. Elena joined ASOS
as Womenswear Director in August 2022, following nearly 18 years at
Inditex, where she most recently held the role of Product Director.
Elena has been instrumental in the launch of Test & React and
is the driving force behind our speed to market initiatives. In her
new role, Elena becomes the single leader of our product
organisation, with responsibility for all ASOS-owned brands and
partner brands sold through ASOS. This will simplify our
decision-making and hence accelerate our speed to market, a pivotal
driver of the relevance of our product.
Improving profitability
Our new commercial model improves our profitability, requiring
lower investment into discounting as well as potentially increasing
basket value and customer lifetime value once fully operational. We
have already seen these benefits on a small scale through our Test
& React trials with no promotional investment needed to sell
through c.60% of each product launch in seven days across c.500
options produced to date, more than offsetting the higher cost of
goods for product created under this model. On our partner brands,
our rollout of DTC ("Direct-to-Consumer") solutions including
Partner Fulfils will also reduce the risk of inventory overhang
typical of branded product sold through our Retail model that is
often ordered around 9 months ahead of the point of purchase.
These benefits will accelerate as we scale up our flexible stock
models. However , the core improvements we have implemented over
FY23 to drive the more than 35% YoY improvement in order
profitability and 100% improvement in H2 EBIT include:
- Targeted action to improve the behaviour of our least
profitable customers including reduced marketing contact and
restrictions on Buy Now, Pay Later solutions at checkout, with a
positive impact on our return rate since these changes were
introduced. We have also recently launched personalised marketing
to improve the profitability of our entire customer base.
- Charging for returns in a number of non-core markets or
introducing charges for returns made after fourteen days but within
the twenty-eight day returns window (and hence maximising our
opportunity to resell returned product at full price).
- Optimisation of the distribution network resulting in a c.20%
reduction in our UK fixed warehouse cost per unit despite inflation
headwinds.
While some of these profitability measures have led to higher
levels of churn (23.3m active customers at FY23, down c.9% YoY (11)
and c.3% from P3) we have exited our least profitable orders and
customers as evidenced by the c.35% increase in profit per order
over the period and lower than expected returns rate. We are laying
the right foundations for sustainably profitable and cash
generative growth. We will provide a more detailed update on our
FY24 strategy alongside our FY23 results.
FY23 results announcement
Our FY23 results announcement and analyst presentation will take
place on 25 October 2023.
Notes
(1) Constant currency is calculated to take account of hedged
rate movements on hedged sales and spot rate movements on unhedged
sales.
(2) Adjusted revenue e xcludes non-underlying jobber income
associated with the transition to the new Commercial Model across
FY23.
(3) Like-for-like sales are adjusted to remove the benefit of
the additional three days of trading in P4 FY23 (1 June to 3
September 2023) vs. P4 FY22 (1 June to 31 August 2022) and the
additional three days of trading in FY23 (1 September 2022 to 3
September 2023) vs. FY22 (1 September 2021 to 31 August 2023). The
impact of the additional days is c.3% at group level in P4 FY23 and
c.1% in FY23.
(4) All numbers subject to rounding throughout this document.
Revenue is stated at constant currency, adjusted for non-underlying
items, based on like-for-like sales (as defined in note 3 above)
and excludes Russia from the FY22 comparative base period following
the decision to suspend trade in Russia on 2 March 2022, unless
otherwise stated. Any other adjusted measures exclude
non-underlying items.
(5) Includes retail sales, wholesale and income from other
services comprising delivery receipt payments, marketing services
and commission on partner-fulfilled sales.
(6) Adjusted EBIT is Earnings before Interest and Tax excluding
non-underlying items.
(7) BRC-KPMG Retail Sales Monitor, July / August 2023 showing
decline in UK online non-food sales in 4 weeks to 26 August 2023.
Kantar data total online market |16-35 year old (total) | 12 weeks
ending 25 June 2023, 23 July 2023 and 20 August 2023 showing online
adultwear spend among 16-35 year old cohort in decline and
continuing to underperform the wider market.
(8) Profit per order based on variable contribution. YTD profit
per order based off September 2022 - July 2023 data vs September
2021- July 2022.
(9) H2 FY23 adjusted gross margin excludes the gross profit
impact of the stock write-off announced at FY22.
(10) Free cashflow guidance is excluding all incremental
refinancing costs (interest, arrangement and advisor fees).
(11) Active customers are defined as having shopped in the last
12 months as at 3 September 2023, and are quoted to exclude Russian
active customers. Including Russian customers, active customers
have declined c.12% YoY and c.3% from P3 2023.
Investor and Analyst conference call:
ASOS will be hosting a conference call for analysts and
investors at 8.30am (UK time) on 26(th) September 2023. To access
live please dial +44 20 4587 0498 / +44 800 358 1035 , and use
passcode: 763128.
A recording of this webcast will be available on the ASOS Plc
website later today:
https://www.asosplc.com/investor-relations/
For further information:
ASOS plc Tel: 020 7756 1000
Jose Antonio Ramos Calamonte, Chief Executive
Officer
Sean Glithero, Interim Chief Financial Officer
Michelle Wilson, Senior Director of Strategy
and Corporate Development
Holly Cassell, Head of Investor Relations
Website: www.asosplc.com/investors
Teneo Tel: 0 20 7353
4200
Jonathan Sibun / Will Palfreyman
JPMorgan Cazenove Tel: 020 7742 4000
Bill Hutchings / Will Vanderspar
Numis Securities Tel: 020 7260 1000
Alex Ham / Jonathan Wilcox / Tom Jacob
Berenberg
Tel: 020 3207 7800
Matthew Armitt / Richard Bootle / Marie Moy
Background note
ASOS is a destination for fashion-loving 20-somethings around
the world, with a purpose to give its customers the confidence to
be whoever they want to be. Through its app and mobile/desktop web
experience, available in nine languages and in over 200 markets,
ASOS customers can shop a curated edit of nearly 50,000 products,
sourced from nearly 900 global and local third-party brands
alongside a mix of fashion-led own-brand labels - ASOS Design, ASOS
Edition, ASOS 4505, Collusion, Reclaimed Vintage, Topshop, Topman,
Miss Selfridge and HIIT. ASOS aims to give all of its customers a
truly frictionless experience, with an ever-greater number of
different payment methods and hundreds of local deliveries and
return options, including Next-Day Delivery and Same-Day Delivery,
dispatched from state-of-the-art fulfilment centres in the UK, US
and Germany.
Forward looking statements:
This announcement may include statements that are, or may be
deemed to be, "forward-looking statements" (including words such as
"believe", "expect", "estimate", "intend", "anticipate" and words
of similar meaning). By their nature, forward-looking statements
involve risk and uncertainty since they relate to future events and
circumstances, and actual results may, and often do, differ
materially from any forward-looking statements. Any forward-looking
statements in this announcement reflect management's view with
respect to future events as at the date of this announcement. Save
as required by applicable law, the Company undertakes no obligation
to publicly revise any forward-looking statements in this
announcement, whether following any change in its expectations or
to reflect events or circumstances after the date of this
announcement.
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END
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