Asos sales could fall another 15% as online retailer continues to struggle

Clearout: Struggling online retailer ASOS has been trying to eliminate about £1.1billion of excess stock

Asos has warned sales could decline by a further 15 per cent in 2024 as it posted much higher annual losses amid a weak consumer retail backdrop.

The struggling online retailer has been trying to eliminate about £1.1billion of excess stock under a turnaround plan spearheaded by chief executive José Antonio Ramos Calamonte.

It said the remaining surplus inventory is expected to be cleared by the end of the current fiscal year, having already reduced it by 84 per cent in the 12 months ending 3 September.

However, this has severely impacted its revenues and earnings, with the latter soaring by more than nine-fold to £296.7million on a pre-tax basis last year.

Profitability was impacted by a £133.2million stock write-off programme, as well as costs from reducing warehouse and head office space.

Meanwhile, turnover fell by 10 per cent to £3.55billion as cost-of-living pressures led to its young consumer base cutting back on clothing purchases, and a lack of Covid-related restrictions continued bringing customers back to high street outlets.

Revenues in the UK were further affected by poor summer weather and substantial discounting by rivals, which are also attempting to clear excess stock.

The London-based company anticipates total sales dropping by another 5 to 15 per cent in the 2024 fiscal year, with trading remaining subdued throughout the first half before returning to growth in the final quarter.

Following this announcement, Asos shares slumped by 9.1 per cent to 359.5p on Wednesday morning, meaning their value has shrunk by over 99 per cent since March 2021.

Despite the warning, Calamonte said 2023 had been ‘a year of good progress for Asos in a very challenging environment’.

He noted the firm had reduced its stock levels by around 30 per cent, bolstered its balance sheet through refinancing and removing profit-based covenants, and ‘significantly improved’ its core profits.

Yet net debt more than doubled last year to £319.5million, while the group is facing fierce competition from entrants like Shein.

Asos reportedly wants to sell the Topshop brand, having bought it just two years ago from Sir Philip Green’s collapsed Arcadia retail empire, to Ted Baker owner Authentic Brands Group.

The company valued the brand’s assets, which include Topman and Miss Selfridge, at £265million in its most recent annual report.

Julie Palmer, a partner at corporate restructuring specialist Begbies Traynor, said: ‘It could be that this trading environment is pushing the retailer to shore up its balance sheet by offloading assets as quickly as its unwanted clothes.

‘Management emphasise that their change agenda provides strong foundations for a shift ‘Back to fashion,’ but it’s going to be a tough road ahead as inflation eats up more disposable incomes and customers spend less. 

‘Sadly, cutting away the deadwood may not be enough to get this business back on track.’

This post first appeared on Dailymail.co.uk